UBS Predicts REITs May Outshine Market Amid Uncertain Economic Conditions

Photo credit: www.investopedia.com

Key Takeaways

Recent analysis suggests that real estate investment trusts (REITs) have outperformed the S&P 500, a trend that UBS analysts project will persist. They argue that the real estate sector may be less vulnerable to tariffs compared to other industries included in the stock index. Furthermore, REITs engaged in triple net leases and those renting single-family homes are likely to exhibit continued stability.

According to a report from UBS, REITs have shown better performance than the general market and have the potential to sustain their advantages amid economic uncertainty.

These trusts, which are involved in owning, managing, or financing income-generating real estate, have yielded returns approximately 4 percent higher than the S&P 500 index from the beginning of 2025 through the latest close on Monday, as per UBS’s findings.

The performance of REITs began outpacing that of the S&P 500 on March 4, coinciding with the imposition of tariffs by the Trump administration on goods from Canada and Mexico, along with increased import taxes on Chinese products. Analysts noted that REITs might continue their superior performance due to real estate’s relative insulation from tariff impacts compared to other sectors within the S&P 500.

“The defensive characteristics of REITs contribute to their stability; they are supported by tangible assets, have limited international exposure, and are expected to experience a delayed effect from any changes affecting tenants,” the report indicated.

The trajectory of President Donald Trump’s trade policies remains uncertain, particularly after the announcement of a 90-day hold on certain tariffs.

Some REIT Assets Seen as Safer Choices

UBS highlighted that in an unpredictable economic climate, REITs with self-storage spaces and those operating under triple net leases—where tenants cover property taxes, insurance, and maintenance—could prove to be more reliable investments. Additionally, sectors involving single-family rentals, coastal apartments, and manufactured homes are expected to maintain stability, according to the analysts.

On the other hand, concerns over potential tariffs paired with a slowdown in consumer spending could negatively affect industrial tenants, reducing demand for warehousing and cold storage. Retail venues such as shopping centers may also encounter significant challenges, the report suggested.

On Wednesday, REIT shares rose alongside broader market improvements following President Trump’s tariff pause announcement. For example, UDR, a company focused on apartment ownership, saw its shares climb about 8%, while Extra Space Storage, which specializes in renting storage units, experienced a 7% increase. Additionally, Equity LifeStyle Properties, managing manufactured home communities and resorts, saw a rise of nearly 4% in shares.

Source
www.investopedia.com