How tariff pressures could affect U.S. listed real estate, which real estate sectors face the most headwinds, and why strong fundamentals put REITs on relatively solid ground amid volatility.
Key takeaways:
• The fundamental impact of tariffs on REITs is expected to be muted compared to broad equities
• REIT cash flow growth expected to accelerate, and valuations remain historically attractive
• Substantial sub-sector dispersion among property types creates opportunities for active management
This month we are digging into how REITs are positioned in the current tariff-induced environment.
Welcome to the Real Estate Reel from Cohen & Steers.
1. REITs offer a potential haven from tariff uncertainty
First, while estimates suggest tariffs could negatively impact earnings for firms in the S&P 500 anywhere from 5 to 35%, REITs offer a potential haven.
REITs are predominantly domestic businesses with minimal exposure to international trade. Based on our current estimates, U.S. REIT earnings are likely to be down 1% or less as a direct result of higher tariffs.
In addition, listed REITs can provide particularly defensive positioning amid market volatility as they maintain stable cash flows driven by lease-based income and higher margins. Those less volatile earnings streams have provided strong returns historically and can be particularly attractive in times of market uncertainty.
It’s important to note that tariffs may have a greater impact on certain real estate subsectors. In industrial, broad economic weakness and supply chain disruptions could be a headwind. In malls, retailer tenants could see costs increase substantially, pressuring their margins. And builders may suffer from higher lumber prices while timberland owners could benefit from reduced supply and higher prices.
EXHIBIT 1
Supply moderating and likely to remain low
Construction starts vs. 10-year average by sector (% of inventory)(1)
January 2019-December 2024
At December 31, 2024. Source: CoStar, Cohen & Steers. Data quoted represents past performance, which is no guarantee of future results. (1) Average of four quarter construction starts as a percentage of inventory by sector.
Long-term, tariffs could boost what we believe are currently favorable supply demand dynamics for REITs. Increased construction costs could restrict new supply, extending a period of low development activity. Reduced supply typically creates conditions for stronger rent growth in the future.
2. REIT cash flow growth and valuations are attractive relative to history
The second point we’d like to dig into relates to REIT earnings and valuations. As measured by Funds Available for Distribution, REIT cash flows are positioned for meaningful growth. After navigating through new supply challenges and adapting to higher interest rates, the sector is at an inflection point.
REIT earnings is expected to reaccelerate, with projections showing above-average growth in 2026 and beyond.
This improving growth trajectory should drive REIT cash flow growth to be more competitive with the broader market.
EXHIBIT 2
Earnings growth has bottomed and is expected to reaccelerate
U.S. REITs(1) funds available for distribution (FAD) growth (%)
At March 31, 2025, unless otherwise noted. Source: Bloomberg and Cohen & Steers. Data quoted represents past performance, which is no guarantee of future results. (1) U.S. REITs represented by the FTSE Nareit All Equity REIT Index. The FTSE Nareit All Equity REITs Index contains all tax-qualified REITs with more than 50% of total assets in qualifying real estate assets other than mortgages secured by real property that also meet minimum size and liquidity criteria.(2) Historic cash flow growth shows the weighted average funds available for distribution (FAD) growth by year. Data from is Cohen & Steers. Cohen & Steers data excludes FAD growth outliers of +/-100% and is based on the constituents of the FTSE Nareit All Equity REITs Index.
At the same time, REIT valuations look historically compelling. We highlight that REITs began 2025 trading at nearly their largest discount to the S&P 500 in history – even including the Global Financial Crisis and COVID pandemic periods.
EXHIBIT 3
U.S. REITs are trading at compelling discounts relative to equities
U.S. REITs vs. U.S. equities earnings multiple spreads(1)
March 2005-March 2025
At March 31, 2025. Source: UBS, Bloomberg, Citi Research – US Equity Strategy, and Cohen & Steers. Data quoted represents past performance, which is no guarantee of future results. (1) (FFO) Funds from operations is the REIT industry’s key earnings metric. It is calculated as GAAP net income, minus real estate gains (plus real estate losses), plus GAAP real estate depreciation and amortization. The price/earnings ratio (often shortened to the P/E ratio or the PER) is the ratio of a company’s stock price to the company’s earnings per share. Earnings multiples are the ratio of a company’s share value to the amount of profit it makes in a particular period, whether paid out in dividends or not. Multiples shown are forward-looking for the current year. (2) U.S. Real Estate represented by UBS’ coverage universe of U.S. real estate companies to September 2019; data thereafter shows Cohen & Steers coverage universe. (3) The S&P 500 Index is an unmanaged index of 500 large-cap stocks that is frequently used as a general measure of stock market performance. It includes 500 large-cap stocks, which together represent about 75% of the total U.S. equities market. To be eligible for addition to the S&P 500, companies must have a market capitalization of at least US$4 billion.
REITs have outperformed the broader market by approximately 5.6% through the end of April, and we emphasize there remains significant room for this valuation gap to narrow further.
3. REIT sub-sector performance creates opportunities for active management
Finally, there has already been substantial sub-sector dispersion in REITs through April, with a 43% spread between the best and worst performing sub-sectors. Infrastructure, which includes cell towers has been the best performing asset-type gaining 22%; while the worst, hotels, are down by more than 20%.
EXHIBIT 4
REIT sub-sectors have wide performance dispersion
A more than 40% spread between the best and worst property types(1) through April
At April 30, 2025. Source: Bloomberg and Cohen & Steers. Data quoted represents past performance, which is no guarantee of future results. (1) Based on FTSE NAREIT All Equity REIT Index, property sectors are classified by FTSE.
Such sector dispersion is a key reason why we believe active management matters. These results align with our views around the broader economy and our preference for REITs with more defensive cash flows.
Whether we experience continued economic expansion, a modest slowdown, or even more challenging conditions, REITs appear well-positioned to navigate the uncertain road ahead.
Watch April 2025 The Real Estate Reel: The strong performance of towers and the unique drivers of their resilience.
Watch all The Real Estate Reel videos.
ABOUT THE AUTHORS
Mathew Kirschner, CFA, Senior Vice President, is a portfolio manager for U.S. real estate securities portfolios.
FURTHER READING
How a REIT allocation can extend retirement savings
Most defined contribution investors are overlooking real estate, and missing out on its powerful portfolio benefits. Historical data shows that adding a permanent real estate investment trust (REIT) allocation can benefit investors in meaningful ways.
The strong performance of towers and the unique drivers of their resilience
The top-performing U.S. REIT sector this year even in the wake of recent market volatility. Favorable supply and demand dynamics. And historically low valuations.
3 Reasons to own Listed REITs today
We see compelling evidence to own listed real estate in the current environment
Data quoted represents past performance, which is no guarantee of future results. The information presented does not reflect the performance of any fund or account managed or serviced by Cohen & Steers, and there is no guarantee that investors will experience the type of performance reflected. There is no guarantee that any market forecast set forth in this video will be realized. There is no guarantee that any historical trend referenced herein will be repeated in the future, and there is no way to predict precisely when such a trend will begin. The mention of specific securities is not a recommendation or solicitation to buy, sell or hold any particular security and should not be relied upon as investment advice.
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