Real estate seen as “safe haven” amid trade war uncertainty

While the stock market at large took a beating amid last week’s escalation of the U.S.-China trade war, one sector continued to show strong growth: real estate.

By offering investors more exposure to domestically-oriented businesses, real estate investment trusts have largely established themselves as a safe haven from global supply-chain disruptions, the Wall Street Journal reported.

“Our conclusion is that for U.S. REITs, it is mostly a nonevent,” Amanda Black, managing director of investment-management firm Jaguar Listed Property told the Journal.

In trading on May 10 and 13 — the day President Trump announced new tariffs on Chinese goods, and the following Monday — REIT shares rose by 0.9 percent while the S&P 500 fell 2.1 percent. Manufacturing companies took a bigger hit, with Caterpillar and Boeing each falling by about 4.5 percent.

The safe-haven status of REITs varies by sector, with residential and health-care considered the most defensive since their strength is tied more to demographic growth than the economy.

On the other hand, hotel and retail REITs are likely to suffer more from an economic slowdown. Data-center REITs like Equinix, which has properties in 24 countries, potentially have more exposure to geopolitical turmoil but have yet to see a major impact.

The most directly-impacted sector may be construction, though the reaction there has also been mixed so far, as The Real Deal detailed last week.

Real-estate stocks are more vulnerable to another type of economic uncertainty, however. Given the industry’s dependence on debt financing, rising interest rates can have a significant impact on stock prices. The Federal Reserve has so far indicated that it not planning further interest rate hikes. [WSJ] — Kevin Sun