Curlow's convictions: Real assets well positioned to weather the US tariff policy induced storm

Overarching policy uncertainty prevails thus far into the Trump 2.0 administration, with the recent tariff-induced volatility rendering economic and asset level forecasts obsolete in a short time frame. The short shelf life of market expectations is further driving volatility, which for long-term investors may provide attractive entry points into private assets including real assets. We explore below how some of the macro challenges are shifting the underlying fundamentals across sectors and markets within the real asset landscape, but it is important to remind ourselves that we are starting from a position of relative strength as values have undergone a significant correction over the past few years and are currently benefitting from balanced fundamentals – with a few exceptions that are most notable in the US. As the recovery begins to take hold —despite higher volatility in the short-term — the continued attractiveness of debt, alongside renewed investor appetite for equity, positions both financing avenues favourably for strategic real estate investment.

Monetary policy support rises as markets navigate trade turbulence. The Trump 2.0 administration tariff policy – which is proving wildly volatile – has spooked the markets into anticipating a notable slowdown in the global economy as trade patterns and consumers adjust to the new world order of trade. While the Trump administration aims to boost US growth, the market’s violent reaction to tariff announcements suggests the market is concerned that the US faces short-term recession risks due to inflationary pressure. As most developed markets do not have the fiscal headroom to support the economic slowdown, it is widely expected that more accommodative monetary policies will prevail – which will help alleviate some of the capital value pressures that otherwise would have impacted real assets. Within Europe, the German Bazooka investment programme may help support medium-term growth prospects.

Despite the short-term impact of policy changes, commercial real estate market fundamentals entered this period from a position of strength. Below, we review sector-by-sector expectations should tariffs take hold.

Warehouse and logistics markets facing duelling banjos. The likely impact of Trump’s tariff policies is a notable shift in global trade and household consumption patterns because of rising costs. We anticipate inventory stockpiling to drive a notable spike in short-term space needs and a growing shift from retailers to outsourcing their logistics needs to specialist third-party logistics providers. Should tariffs remain in place over the medium term, we may well see a shift in where products are produced as well as in the ultimate global trade routes. This dynamic could challenge the historically core warehouse markets on the West Coast of the US (key inbound ports for APAC-produced goods) and Rotterdam in Europe (key for US-bound exports). The long-term megatrends of both rising e-commerce and nearshoring remain intact, so we remain positive on the sector but acknowledge that tariff-induced volatility and slower GDP growth may weigh on leasing activity in the short term. However, uncertainty may cause a further slowdown in construction starts.

Tariff effects diverge - softer blow to European retail sector. Consumers have already responded to the tariff announcements with lower confidence levels coming through in survey data, in particular from the US. In addition, some retailers are issuing performance warnings as they see downside risks to sales levels and higher costs of production likely to weigh on their profitability going forward. The impact of this dynamic is likely to be felt most in the luxury sector and exacerbated by the wealth destruction stemming from the market turmoil. Low-cost producers in South East Asia are already eyeing the European consumer markets as a potential target for clearing excess inventory that otherwise would have been bound for the US. This is likely to help keep the inflationary impacts of tariffs more modest in Europe – providing further support for rate relief and also limiting the economic impact of slower consumption relative to the US. While the strong rebound post-pandemic has seen operational performance of retail real estate surprise to the upside and start garnering growing investor interest, the tariff-induced challenges on the sector may lead to waning investor interest in the sector

Leisure travel already seeing the impact of rising geopolitical tensions. The hotel segment is among the most GDP-sensitive sectors and downgrades in global GDP expectations could mean a sharp drag on discretionary spending and business demand. There has already been a significant decline in international visitor arrivals in the US as tourists fear a more hostile border amidst growing geopolitical tensions. International travel arrivals were down more than 10% y-o-y in March 2025 – European-based travellers driving the decline in arrivals. This poses a challenge to the US economy, where tourism accounts for nearly 3% of GDP. The European hotel sector’s strong recovery has been driven by US tourists, who have been arriving in record numbers and tend to spend more per person than others. Given the drop in the dollar and rising tensions, we anticipate the luxury end of the European leisure hotel market could see occupancy struggles as long as this volatile period persists.

European higher education to benefit as international students seek accessible alternatives. The Trump 2.0 administration has deported hundreds of foreign students back to their home countries. While the quantum isn’t significant to alter underlying market fundamentals, which remain attractive, the knock-on effect on future international student flows could have more of an impact. From a cost and experience perspective, Continental European universities are well positioned to capture some of this international student demand as they are offering more English-language classes and at an all-in cost of higher education – including tuition, living expenses and accommodation – which is around a third of the level demanded by US, UK and Australian alternatives.

Prime offices should remain insulated as demand holds and new construction starts may be deferred. Premium office space around the world remains fairly limited so we expect demand for good-quality space to remain as corporate occupiers continue to trade up to better-specified spaces as lease events allow. Furthermore, the market volatility may defer new construction starts as developers monitor tariff negotiations and their potential impacts on raw material costs. The US office market, which has some of the highest office vacancies globally, is more vulnerable to a material slowdown in net absorption.

Residential assets should highlight their defensive characteristics. The non-discretionary need of housing is expected to showcase the defensive characteristics of the multi-family/ PRS sector. However, weaker job prospects, falling markets hurting the wealthy, and higher inflation in the US could provide a more challenging prospect for the higher-end more luxury segment of the market. Affordability considerations and social/workforce housing opportunities will likely provide better performance prospects in this macro environment.

Trade and renewable energy infrastructure segments likely most impacted:

Shifting trade and travel patterns could shift container port and airport volumes. As bilateral negotiations continue, we may see shifts away from historically significant sea and airports. The west coast of the US – and notably the ports of Los Angeles and Long Beach – are particularly exposed to imports coming from APAC, while Rotterdam in Europe is notable for its export trade links to the US given its proximity to the key European exporters of Germany and Italy. Leisure-oriented airport hubs, along with the lucrative and therefore key US/Europe travel routes, will likely also underperform over the short term as travel numbers are already down considerably.

Europe well positioned for clean tech supply pivot. China is the main producer of the world’s clean tech components. Given the renewed tariff focus of the Trump 2.0 administration on China, we would expect these companies to be canvassing the global markets for alternative customer options. Europe remains at the forefront of this transition so could provide an attractive alternative.

All data sourced by AXA IM Alts as at April 2025.