Investments in US Real Estate – fundamentally with great opportunities, but clouded by political uncertainty
1. Summary
The market uncertainty generated by President Trump’s trade tariff announcements on April 2 presents real estate investors with several dilemmas. Fundamentally, the US real estate market remains unchanged: It is still the largest, most diverse, and liquid market, offering investors the most extensive range of sectors. Furthermore, it is currently at an attractive valuation point in the property cycle. Values are certainly attractive when compared to past historical crises. Thanks to the size and variety of the US economy, the US real estate market offers access to a wide range of traditional and alternative real estate sectors, which is not replicable outside of the US.
Nonetheless, the uncertainty triggered by fundamental changes in US global macroeconomic strategy and dramatic shifts in foreign policy raises questions about risk. It is unclear how the economy, capital markets, and real estate markets will respond over the medium term to the government policy initiatives announced and implemented through presidential orders.
The changes could either signal short-term policy volatility or indicate long-term structural change, impacting future risks and returns. The most significant issue we currently see is uncertainty. Uncertainty also challenges long-term investors, particularly in illiquid assets such as real estate. While fundamentally the US real estate market remains unchanged, we expect uncertainty to persist at least throughout the summer. Therefore, we expect investors to maintain their existing allocation policies but remain cautious regarding additional US investments while policy uncertainty remains heightened.
2. Underwriting uncertainty
The current upheaval in US economic, domestic, and foreign policy raises two primary concerns for real estate investors. The first concerns the consequences of government actions on the US and global capital markets. The second concerns the impact of policy changes on the real estate investment landscape in the US and North America.
The policy moves announced and implemented have often been chaotic, contradictory, and confusing. The consequences have been elevated market uncertainty. Nonetheless, the final policy landscape may differ from the media headlines and initial policy actions, underscoring the need for measured investment strategies, particularly in illiquid sectors such as real assets.
Global Policy Uncertainty Index, Q1 2025
3. The policy initiatives
The US administration aims to revitalise US manufacturing and boost the economy by lowering taxes, reducing government spending, cutting regulations and reforming global relationships to benefit US businesses and consumers. It has identified key policy areas which it believes can contribute to achieving these political objectives:
The most consequential thus far has been the America First Trade Policy, which involves implementing trade tariffs. On April 2, the administration announced tariffs on more than 70 countries to address unfair foreign trade practices affecting American businesses.
The “Drain the Swamp” policy aims to reduce and reform government bureaucracy. The DOGE has dismissed thousands of Federal employees, reduced the flow of government information and statistics, and closed whole departments.
Making America Affordable and Energy Dominant Again will unleash American energy by ending policies of "climate extremism". The US has withdrawn from the Paris Accord, abandoned all climate policies, and ceased data collection on climate change.
The Make America Safe Again policy aims to secure US borders and deport undocumented aliens, reducing the country’s labour force. The America-First foreign policy will put US priorities ahead of multi-lateral initiatives and organisations that exploit the US, e.g., the EU, NATO, and the UN.
Bring Back American Values has ended DEI initiatives, including measures related to banning discussions around race and gender.
The Tax Cuts and Jobs Act (TCJA), also known as the One Big Beautiful Bill Act, which is being debated in Congress, would further widen the US deficit, which is already at very high levels, potentially causing turbulence in the bond market. International investors are particularly concerned by the Section 899 provision, which would permit income tax increases of up to 20 per cent on investors from countries deemed “unfair”.
4. Macro-economic implications
Make America Affordable Again and America First Trade Policy combine tariffs and energy dominance. Taxes imposed on imports by US companies are likely to result in elevated prices and sluggish economic growth. Since tariffs were first announced, US consumer sentiment has declined sharply, with inflation expectations reaching their highest level since the 1990s. Additionally, the “Drain the Swamp” initiative, aimed at reducing the Size of the Federal Government, has added to consumer uncertainty due to cuts in government payrolls and concerns about Social Security and healthcare funding.
The mass deportations planned for the “Make America Safe Again” campaign could lead to labour shortages in the long term, impacting various labour-intensive sectors of the economy and potentially raising inflation. In response to labour shortages, some US states have relaxed child labour laws to permit school-age children to work in adult roles and under adult employment conditions.
5. Capital market’s reaction
The capital markets are witnessing significant volatility due to policy changes. The US stock market has been highly volatile since 2 April. It was in bear market territory until the Administration changed its policies in response to stress in the US Treasury market. Indeed, US Treasuries have experienced substantial fluctuations amid concerns about a recession and inflation, as depicted in the chart below, and traded at 4.5% on April 8, a rise of 60 basis points since tariffs were announced. In contrast, while the 10-year bund spiked in Germany due to the new government's extensive debt-funded spending initiatives, it has remained stable since 2 April.
US 10-year Treasury yield in % German 10-year bund yield in %
Source: FRED, CNBC, March 2025
In the short term, further uncertainty around government policies will increase volatility in the capital markets, impacting business and consumer confidence in the broader economy. The primary market concerns are stagflation and a significant decline in the dollar, although this is not yet considered a baseline scenario.
Source: FRED, CNBC, 31 May, 2025
6. The implications for US real estate investment
The Trump Administration’s tariff announcements have significantly impacted capital markets since 2 April, although the recent policy announcements have yet to affect the direct real estate markets. Nonetheless, the implemented and proposed measures will have consequences. The initial reaction of the public markets may provide some insights. The REIT market has been impacted alongside global equity markets, although it has sold off less precipitously. The US has been harder hit than Europe, with sectors such as lodging and industrial experiencing the worst effects, while single-family rental, healthcare, and net lease sectors have sold off less severely.
Global real estate returns & US equities, Year to date, euros
Source: EPRA, Euros @ 31 May 2025
Current and proposed policy changes could also have a positive impact on the economy and real estate. On a positive note, tariffs on construction materials might increase development costs, easing supply pressures as new development becomes too expensive, thus improving the relationship between new supply and demand.
In the medium term, the cuts to the Federal government aim to reduce regulatory burdens and costs, paving the way for lower taxes and reduced compliance costs, which would support US businesses, including real estate. Additionally, the SEC has lifted its climate risk disclosure requirement, leading some investors with climate risk strategies to reevaluate their priorities. The government also proposes relaxing banking regulations, particularly those related to Basel III, to enhance capital access, which would support the US real estate sector.
Nevertheless, a slowdown in economic growth potentially culminating in a recession would weaken fundamentals across various property types, leading to increased vacancy rates and challenging investment activity. The sectors most exposed to the tariff changes are industrial and retail properties, as these changes could impact consumer spending and the flow of goods. The proposal of retaliatory tax hikes against foreigners could deter international investments in the US and further intensify downside pressure on the US dollar.
7. Underwriting investment in the US
The US has been an essential destination for the following main reasons:
• Market depth
• Liquidity
• Market size
• Diversification – a lower correlation with other regions
For real estate investors, it offers the most diverse and growing sector opportunities, along with transparency and liquidity. Although there has been considerable turmoil in US policy-making and the financial markets have responded predictably to this policy uncertainty, the impacts on the US and global economies have yet to materialise. Likewise, the market conditions that historically supported US allocations backed by good medium-term growth forecasts remain unchanged. However, the short-term outlook has undoubtedly deteriorated. The US also adds a layer of diversification to the overall portfolio, as the region has a low correlation with other regional real estate markets.
Nevertheless, the tariffs and other policy measures will have a widespread impact on the market. Consequently, several factors must be considered when responding to the ongoing volatility.
Firstly, the economic measures and shifts in international alliances and foreign policy may be temporary. The first Trump administration, along with the evidence from the first 90 days of the new administration, suggests that much could still change in what appears to be a fluid situation. It remains unclear what is happening and whether the unfolding events signify the beginnings of structural change or merely moments of policy-induced market volatility.
Secondly, investors need to revisit why their real estate strategy was focused on the US and how much those conditions may have changed. Strategies will have identified the US as a highly liquid and transparent market with strong governance. It offers a wide range of sectors and property types that have produced attractive risk-adjusted returns unavailable elsewhere. Finally, the macroeconomic and demographic environment was more appealing compared to those in Asia and Europe.
Assessing change throughout these factors that have dominated the investment strategy will prove itself as the guiding structure with which new decisions can be made. Fundamentally, the U.S. real estate market remains unchanged and continues to be the largest, most diverse, and liquid market, providing investors with the broadest range of sectors. Current pricing in the direct market is attractive, with values down 20% from their most recent peaks, and the demand-supply fundamentals are relatively appealing. These features have led investors to increase their exposure to the U.S. due to its diverse range of markets and sectors that cannot be easily replicated elsewhere.
Thirdly, the effects of tariffs and the policy decisions made by the Trump administration since January should also be weighed against the US’s current real estate investment landscape. There is an argument that real estate presents a more compelling case in the US than other asset classes, which may appeal to domestic capital that recognises the economic sensitivity of real estate compared to other sectors. US real estate starts from an attractive relative valuation position after price corrections in 2022-24, and is backed by solid market fundamentals. Forecasts have a short lifespan, and while real estate is certainly not immune to the current turbulence in capital markets, it appears to be regarded as a safer haven in the ongoing storm by many domestic US institutional investors.
8. Long-term investors have the advantage of time on their side
Ultimately, real estate investors should carefully manage their risk budget in this unpredictable policy environment while staying aligned with their investment principles to avoid missing potential opportunities. Investors will need to adapt to potential policy and regulatory changes by continually reviewing their underwriting assumptions. Success will depend on navigating these challenges while maintaining a focus on market fundamentals and property performance. Investors should also prepare for various scenarios arising from federal government policy that could affect the performance of their existing and future portfolios.
Investors holding US assets who are contemplating reducing their exposure should assess the risks associated with withdrawing from a US investment vehicle. They should consider the potential impact on returns and the maximum loss they can tolerate while exploring realistic alternatives to US investment. Furthermore, they need to recognise that current market conditions are relatively favourable. Indeed, today's US real estate market differs significantly from the stresses observed in 2000, 2007, and 2021. US real estate pricing is generally regarded as close to fair value following nearly two years of price corrections.
Ongoing uncertainty is the most significant challenge in the short term, especially in illiquid asset classes such as real estate. Therefore, long-term investors can remain patient amid uncertainty and a constantly evolving policy landscape. Investment decisions should be made over an extended timeframe to fully understand the changes that are taking place. Warren Buffett often said, “The market transfers money to the patient investor.” Patience is the most effective strategy during uncertain times, offering greater benefits than hastily reacting to short-term market fluctuations.
9. Conclusions
The pace of policy changes, which occur almost daily, makes it challenging for investors to develop a coherent strategy regarding the US. Additionally, market volatility is unlikely to decrease. At the same time, the US government is engaged in a series of bilateral international tariff negotiations and is also renegotiating various foreign policy and defence agreements. As a result, investors will need to assess the implications of President Trump's policies for the domestic, regional, and global economies, as well as their effects on real estate.
International investors have underwritten the US based on its size, the liquidity of the US market, and the depth of investment opportunities. Historically, it has offered the benefits of investing in a market that provides immense diversification due to its low correlation with other global markets. Likewise, long-term investors recognise that the current volatility in the US and globally may be a short-term phenomenon that does not impact the portfolio's long-term performance.
For now, these conditions remain in place, although significant changes are proposed that could alter several of them. Therefore, investors will need time to evaluate whether the current changes in US politics, in particular the new trade policy, are structural and necessitate a fundamental review of the risks associated with investing in US real estate markets: taxing foreign investors' capital, as proposed in the current bill, would be highly detrimental.
The changes could signal short-term policy volatility or indicate long-term structural change, impacting future risks and returns. The most significant issue we currently see is uncertainty. Uncertainty challenges even long-term investors, particularly in illiquid assets such as real estate. While fundamentally the US real estate market remains unchanged, we expect uncertainty to persist at least throughout the summer. Consequently, international real estate investors should remain cautious, monitoring how the various strands of US government policy impact the investment climate and the real estate market at large.
