The lack of a direct connection between share markets and commercial real estate (CRE) means the latter is uniquely situated to deal with any downward market movements that result from United States government policies and tariffs, according to a global investment firm.
Janus Henderson Investors co-heads of global property equities Guy Barnard and Tim Gibson, and portfolio manager Greg Kuhl said CRE was well positioned for uncertainty and volatility because of its underlying fundamentals.
“As real estate investors we don’t need to estimate how many units of our product consumers will buy this year, whether our suppliers will increase input prices for the goods we produce, whether our key drug will be approved or whether new tech will come along that makes our hardware or software obsolete,” the three said in a market commentary statement.
“CRE operates based on legally contractual leases where future cash flows are highly predictable. High-quality real estate typically attracts high-quality tenants, which tend to meet their obligations – we saw this even during COVID when tenants continued to pay rents even when they weren’t there.”
They noted that while US imposed tariffs may play out across markets, CRE was immune to these impacts, but new building supply that tries to poach tenants was always a risk.
“The supply backdrop was already looking supportive with the brakes having been hit on new construction in many sectors in 2022/23. This benefit should feed into landlords’ pricing power in the years ahead, notably in sectors such as industrial/logistics and apartments,” they said.
The trio also noted listed real estate investment trusts (REIT) were able to reposition their portfolios, unlike private real estate vehicles.
“For example, we track 17 different property types within CRE. Some of these are longer duration and more defensive in nature, while others see their fundamentals respond much more quickly to changes in the economy. We can reposition our portfolios in a matter of days, which is a deeply underappreciated benefit of the listed REIT asset class.”
“Real estate can sometimes be seen as a slightly boring asset class, lacking the headline-grabbing attention of other sectors. But against the current backdrop of a more volatile and uncertain macro environment, perhaps being steady and boring is a positive quality to have.”
''