Danny Ismail, co-head of strategic research at Green Street, joined Nareit’s REIT Report podcast to discuss how real estate and REITs are positioned in the current highly volatile market environment created by last week's White House announcement on tariffs.
Ismail said there's good reason to fear a slowdown in economic growth resulting from an increase in tariffs, not just from potentially higher import costs, but also a pullback in business investment as well as consumer spending.
As for the market response, “we'll see how the next few weeks shake out, but thus far REITs and real estate appear to be a relative safe haven,” Ismail said. One reason for that is the starting valuation of REITs prior to the tariff announcement, where REITs looked attractive relative to the S&P 500. “REITs came into this environment on the cheaper side, while private real estate came in looking fairly valued,” Ismail noted.
Aside from starting valuations, the structure of REITs is a benefit today in the sense that public REITs are liquid and priced daily, Ismail said. This allows investors to see what current market participants are thinking about the various property sectors and to act opportunistically and reallocate portfolios as needed.
Ismail also said he sees potential for lower supply growth given higher construction costs, which should be supportive of future rent and occupancy growth, all else equal. In addition, there is an opportunity for a rotation of fund flows back into real estate. “The last few years, fund flows across a variety of real estate verticals have been weaker than historical averages so a reversal of that would be a positive for the industry, including REITs,” he said.
Generally the best performing sectors following the tariff announcement have been those less tied to the broader economy, which includes towers, manufactured homes, net lease, and gaming, Ismail said.