Markets are officially alarmed by the Trump administration, as major indexes have returned to levels not seen since last September. And this morning, economists at JPMorgan have raised the odds of a recession this year to 40% from 30% at the start of 2025, citing “extreme U.S. policies.”
Yet the real estate sector so far has sailed through the turmoil unscathed. In fact, heading into Monday the MSCI U.S. REIT Index was up 2.6.% since Jan. 1, while the S&P 500 fell 1.7%.
“Few, if any, investors assumed that REITs would outpace the S&P 500 nearly 2½ months into the new year,” Evercore ISI real estate analyst Steve Sakwa said in a client note this morning. “But that’s exactly what’s happened.”
The best New York-based performers aren’t well-known. They include Vici Properties, owner of Chelsea Piers and Las Vegas casinos, up 13% so far this year. LXP Industrial Trust, owner of 58 million square feet of property nationwide, is also up 13%. Meanwhile, shares in Manhattan’s two biggest commercial landlords, SL Green and Vornado Realty Trust, are down 12% and 10% on the year, respectively, and both were down 4% in afternoon trading today.
At first glance, the overall strength among real estate names seems hard to explain. The raw materials of real estate are becoming more expensive. Framing lumber prices jumped by 5% last week, to $483 per 1,000 board feet, driven mostly by reports of Trump imposing 25% tariffs on Canadian imports, according to BMO Capital Markets. Last summer framing lumber could be had for less than $400 per 1,000 board feet, the National Association of Home Builders says. Rising prices like these help explain why inflation remains too high for the Federal Reserve to resume cutting interest rates.
But although the Fed isn’t cutting short-term rates, the market is lowering long-term rates – the ones that matter most for real estate.
The yield on the 10-year government bond has fallen to 4.2% from 4.8% since President Trump returned to office. That could be a sign of a weakening economy. After all, a 4.2% isn’t terribly attractive as a return unless you think stocks will perform worse. But declining interest rates are exactly what heavily leveraged real estate owners were hoping for heading into this year, and the market is tuning out the White House’s voluminous noise to deliver them.
“Bond markets are looking through the tariff tiffs,” said Piper Sandler analyst Alexander Goldfarb.
The strongest real estate sectors so far this year are infrastructure and industrial REITs, each up 12% heading into today. That makes sense if you think the Trump administration is going to ease regulations that have hindered development of housing, roads and factories. Storage stocks are up 4.6%, presumably developers need space to stash the Canadian lumber and other commodities they stocked up on before the tariffs hit.
A notable weak spot is the office sector, down 8% so far this year. Leasing activity is good in New York, but it’s pretty blah most everywhere else, and the Trump administration seems intent on firing as many federal workers as they can, which presumably would mean leasing less space.
