REITs proving a safe haven amid tariff turmoil

• QuotedData
• Richard Williams

Very few pockets of the investment universe have escaped the tariff turmoil, but could the real estate sector prove a safe haven while volatility and uncertainty prevail?

With global markets sent into a tailspin following “Liberation Day” in early April – when the US president imposed penal, “reciprocal” tariffs on every nation in the world, before performing several U-turns – investors seeking a place to hide during the uncertainty may do well to look at listed property.

Since 2 April, the date of President Trump’s infamous unveiling of the tariffs at the White House Rose Garden, the average share price of UK listed real estate companies has risen 1.7% compared to a 2.5% drop in the MSCI UK Index, as shown in Figure 1.

Figure 1: UK listed real estate versus MSCI UK Index, 2025 year-to-date (rebased to 100)

Source: Morningstar, Bloomberg, Marten & Co

This is an indication that financial markets view real estate as a relative safe haven compared to most other sectors. Buy why has real estate been a bright spot during this time of market stress and can it last going forward?

We should remind ourselves that real estate has suffered a prolonged period of pain since interest rates spiked in 2022 and values plummeted. Values have already suffered a 20%-30% decline since 2022 with yields around 150-200 basis points higher. This may have helped cushion the blow in the current risk-off environment, with the sector coming from a low base and at the beginning of a period of recovery.

As central banks wrestle with their rate setting agendas in the face of inflationary pressure and heightened recession risk, markets are expecting several cuts from the Bank of England and the European Central Bank this year. Lower rates tend to be positive for the real estate sector, given the sensitivity of the sector to market rates.

Lower interest rates may not translate into lower property yields, however. Whilst companies tend to continue paying rent and lease costs during downturns, slower growth would have the effect of dampening occupier demand and put the brakes on rental income growth, which may cancel out the positive effects of lower market rates.

In terms of US tariffs, real estate has limited direct exposure. Most property companies operate domestically and have just a limited amount of rental income deriving from US companies. Although direct impacts from tariffs are limited, indirect effects such as lower exports, higher uncertainty, lower investment and weakening labour markets could slow or stall the real estate sector’s recovery.

Oxford Economics has revised down its outlook for European commercial property, trimming its all-property capital growth forecast from 2.0% to 1.5% per annum over 2025 and 2026, stating it expects slower demand to hit rental growth and persistent uncertainty to lead to a flatter yield profile.

The industrial sector is most directly impacted by tariffs, with European manufacturing and exports set to take a hit. It is anticipated that demand will slow in the near-term as businesses delay decision making.

Longer-term though, it could be the case that fragmented global trade would require more warehouse space. This was the case following Brexit, where supply chains had to be reconfigured separately for the UK and continental Europe, which led to higher inventory requirements.

Supply chain resilience was already a trend benefiting European logistics, with several shocks including Covid and the Suez-canal incidence in recent years, and this has yet to play out. The UK and EU defence spending commitments could also act as an offset to any demand-side weakness caused by tariffs. In the UK defence spending projections have been upped to £13.4bn and 2.5% of GDP by 2027.

UK commercial real estate’s defensive characteristics and income-generating traits make it an ideal safe haven for investors. Add to this that a recovery is in full swing – with MSCI data for 2024 showing that capital values rebounded to their highest levels since 2022 and income growth topping 5% since early 2023 – and now could be the real estate sector’s time to shine.