Private real estate owners and investors searching for clues on how tariffs are likely to affect commercial real estate are tuning in to what public REIT executives are saying.
The word of the hour remains “uncertainty” as private and public real estate companies continue to watch and wait to see how the current administration’s trade policy and global tariffs continue to play out. “So far, there’s been very little to no direct impacts from tariffs for the REITs, although that doesn’t mean there are no impacts,” said Chris Hudgins, research analyst, real estate at S&P Global Market Intelligence.
One issue REITs are watching closely is the potential for tariffs to increase the cost of construction materials. Steel tariffs in particular have been a key focus, with U.S. tariffs on steel and aluminum imports from all U.S. trade partners increasing from 25 to 50 percent as of June 4.
Rising construction costs are a key focus for AvalonBay Communities. That REIT has a robust development pipeline with 19 projects currently under construction and guidance that anticipates $1.6 billion in total construction starts this year.
In its Q1 earnings call, AvalonBay reported that construction materials represent 25–35 percent of hard costs and about 20 percent of total project cost. The company estimated that tariffs might increase its total hard costs by about 5 percent, which would drive a roughly 3–4 percent increase in overall cost basis. “This is a meaningful increase and could be enough to tip some projects into being infeasible, [but] these potential headwinds, which vary from project to project, are currently, in most cases, being more than offset by the larger macro backdrop of declining start activity,” said Matt Birenbaum, AvalonBay’s chief investment officer.
According to data from Dodge Construction Network, nonresidential construction starts on a year-to-date basis through April were down 9 percent, whereas residential starts were down 5 percent.
“What’s interesting is that we’ve been a lot more bearish on new construction than I think the REITs have,” said Daniel Ismail, a managing director and co-head of strategic research at Green Street. A number of REITs said publicly, during their first quarter earnings calls in April and May, that they haven’t yet noticed construction costs increasing materially. Analysts agree, however, that tariffs remain a fluid situation, and it may take more time for cost changes to show up in REIT data.
All eyes on retail
Retail owners are watching how tariffs may affect costs, supply chains, and inventory for their retailers, as well as potential changes that tariffs might have on consumer spending and consumer behavior. According to the Michigan Consumer Sentiment Index, consumer sentiment has fallen by 11.3 percent year-over-year from 68.2 percent in June 2024 to 60.5 percent in June 2025.
“One thing I’ve heard on the positive side is that the Covid pandemic was a bit of a wake-up call for retail tenants, and a lot of them started putting more thought into diversifying their supply chains into the U.S.,” S&P’s Hudgins said. That focus on improving supply chains and holding more inventory may help retailers better navigate potential disruptions related to supply chains, he adds.
“I don’t think tariffs impact our go-forward strategy, really, at all,” said Joey Agree, president and CEO of Agree Realty Corp., during the REIT’s Q1 earnings call in April. “I think, effectively, the biggest retailers in the country that sell necessity-based goods and services will benefit.”
Agree went on to say that he expects the net lease REIT to continue to invest in strong credit companies such as Walmart, Home Depot, Lowe’s, and T.J. Maxx, along with the dominant retailers in their respective categories, such as auto service, convenience stores, and off-price retail. “I think all of these sectors are, effectively, winners in a large tariff environment,” he said. “There may be some short-term pain, but long term, they have the balance sheets, the market position to continue to thrive.”
Another advantage for some shopping center owners is that they have diversified their tenant mix to include more service-based tenants such as entertainment, fitness, and medical tenants that are less directly affected by tariffs.
When asked about the sort of conversations Simon Property Group is having with its retailers around the tariff situation in its Q1 earnings call, CEO David Simon had this to say: “Demand is still strong, and we haven’t seen across the board—by any stretch of imagination—reduction in the leasing demand,” he said. Simon is being more conservative on its outlook for sales, though. “I think we’re going to land within our original guidance, which is good, given all the uncertainty, but we’re thinking that inventory levels could be affected because of the China tariffs . . . so, I think it has the potential to affect sales,” he said.
Industrial faces mixed impact
Industrial is another sector that faces potential tariff exposure related to supply chain disruption, the flow of goods into ports, and higher costs for U.S. manufacturers. REITs are generally reporting a mixed impact, with some tenants accelerating imports during the first quarter to get ahead of tariffs and also a slowdown in decision-making on new leases due to macroeconomic uncertainty.
In its Q1 earnings call on April 16, Prologis reported that it had outperformed expectations on earnings and occupancy, but because of uncertainty related to global tariffs, the company opted to maintain its expectations for 2025 rather than to raise them.
In an insight article Prologis published on its website May 1, Prologis noted both positive and negative impacts: “After April 2, some progress stalled as long-term supply chain investments were scrutinized amid volatility. That said, we see a market that’s still active. Many leases have moved forward since that date, including for short-term solutions to manage volatility and long-term build-to-suit investments tied to structural supply chain needs and underlying growth in customer businesses.”
Those property owners with warehouse and distribution facilities near ports could be more negatively affected by tariff-related slowdowns in the flow of goods. In May, U.S. container imports at the top 10 U.S. ports dropped sharply, falling 9.7 percent from April and 7.2 percent year-over-year, according to data from Descartes Systems Group. The logistics and supply chain management firm attributes the decline to shifting trade policies.
Holding firm on guidance
Some big-name retailers, including Walmart, have suspended financial guidance because of uncertainty related to REITs. So far, though, REITs are generally holding firm on guidance for the year in place. “It’s a pretty good vote of confidence that REITs haven’t suspended guidance, and they’re not expecting operations to fall off a cliff because of what might happen with tariffs,” Ismail said. In fact, health care REIT Ventas recently raised its guidance on new investment from $1 billion to $1.5 billion for 2025 due to what it sees as a robust pipeline of investment opportunities.
Issues affecting REIT operations in the first quarter generally involved the broader macroeconomic environment and too much new supply in sectors such as industrial and multifamily, rather than higher costs due to tariffs. That, in itself, is reassuring, Ismail noted, because despite the broader market being incredibly focused on these macro-risks, the fact that commercial real estate remains more focused on underlying fundamentals is a positive thing for the industry. The underlying real estate fundamentals for most property sectors are positive, he added, albeit with an outlook for lower levels of growth in the near term.
“It’s not surprising that there haven’t been any immediate shifts in strategy or guidance, especially related to tariff news,” said Todd Kellenberger, client portfolio manager at Principal Asset Management for public REIT and infrastructure strategies. “REITs are long-term investors and holders of real estate, and so their strategy is aligned with a long-term focus.” Many are probably viewing tariffs as a one-time, short-term impact, and they’re focused on bigger, more sustainable trends, such as demographics, employment, and changes in technology. “There are other factors at play that are really going to drive overall REIT corporate strategy, more so than what tariffs are doing right now,” he said.
Slowing economic growth
A significant risk for both public and private real estate is the possibility that tariffs and other new policies introduced by the Trump administration on such issues as immigration and federal job cuts may result in flat economic growth or a recession. Uncertainty on the path of the economy has prompted some economists to increase the risk probability of a potential recession in their forecasts.
“REITs are looking more at the macro context, as opposed to the direct impacts on areas such as construction, which seems pretty limited at best,” Hudgins said. In early June, the OECD lowered its forecast for global economic growth from 3.3 percent in 2024 to 2.9 percent in both 2025 and 2026. The slowdown in growth is expected to be more concentrated in the United States, Canada, Mexico, and China. U.S. growth is projected to slow to 1.6 percent in 2025 and 1.5 percent in 2026.
Slowing economic growth often correlates with weaker demand for space. The path of the economy also influences interest rates, and real estate owners across the board have been waiting for rates to come down. “A lot of the drivers of real estate fundamentals obviously will be negatively impacted by any dips in economic growth. But there are some real positives in terms of potentially lower supply growth, and I think that’s what a lot of the REITs have been noticing as well,” Ismail said.
Rebound in REIT valuations
The valuations for the public REIT stocks can be a forward indicator for the private market. The stock market, including REITs, underwent a large sell-off immediately after tariff announcements. The Dow Jones Equity All REIT Index dropped about 6.24 percent in the days immediately following President Donald Trump’s April 2 Liberation Day announcement.
Since then, REIT stock prices have climbed back. As of June 10, the Index was down less than 1 percent compared to where it was at the end of March. “The index has really regained almost all of its ground from that date, and we’re kind of right back where we were pre-tariff announcement,” Hudgins said. “That also shows the sentiment of investors in the space and how they’re waiting to see how these tariffs play out.”
The REIT stocks that have outperformed are in those sectors that are more defensive and have less overall economic sensitivity, such as wireless towers, net lease, and health care, particularly senior housing. Those sectors have good structural drivers for demand, and they tend to be good places to hide when conditions look uncertain. It’s economically sensitive sectors such as hotel, office, and retail that are lagging and have negative returns on a year-to-date basis, Kellenberger noted. Similarly, it’s likely that private investors are going to be a little more cautious—or more confident—depending on their particular property sector, he added.
“The public market has already placed . . . bets on which are the most sensitive, and I think they are largely correct,” Ismail agreed. Another takeaway for private real estate investors is that, overall, there is still a fair amount of positivity in terms of the pricing of public REITs today, relative to other asset classes. “Despite the high amount of uncertainty, whether it be tariffs, taxes, or interest rates, REITs have been relatively resilient,” he said.
