The United Kingdom's FTSE 350 Real Estate Index, which tracks large and midcap stocks in the sector, lifted on Thursday as markets reacted to United States President Donald Trump's "Liberation Day" introduction of worldwide trade tariffs.
The president unveiled global trade tariffs on Wednesday with a 10% tariff applied on all United Kingdom exports to the United States, meaning it is one of the countries Trump has decided will be hit with the lowest tariff level.
United Kingdom Business Secretary Jonathan Reynolds immediately begun consulting domestic firms about the likely impact and says if United Kingdom negotiators can not agree a deal to reduce the tariff by 1 May, the government will impose retaliatory tariffs on United States imports.
Stock markets across the world have slipped on the news. Japan’s Nikkei 225 index was down 2.8% at close, while the Hang Seng Index in Hong Kong was down 1.52% at close. In the US, the Dow Jones fell 2.8% in initial trading, the S&P 500 was 3.3% lower, and the Nasdaq fell 4.4%.
United Kingdom real estate stocks are an outlier. By 3:15 in the afternoon in London, the listed real estate sector index, the FTSE 350, was up 1.6% to trade at 380.12p having hit a near 52-week high of 382.25p earlier. That rise is in direct contrast to the wider United Kingdom stock market, with the FTSE 100 down 1.59%.
Of the leading United Kingdom real estate investment trusts Landsec's share price had risen 2.27% to 563p by 3.15 in the afternoon while British Land was up 1.01% at 379.20p, Segro was up 1.36% at 699.40 and LondonMetric was up 3.14% at 187.20p.
Investors are responding to the view that the United Kingdom, and real estate in particular, could act as a hedge against the impact of tariffs on other sectors. Europe, by being forced to focus more on home industries and security, will invest more in infrastructure and real estate.
Walter Boettcher, head of research and economics at Colliers, said it remains to be seen whether there's "more blusher rather than bite in the new United States Liberation Day.
"Those who believe that Trump is strictly transactional may console themselves that these tariffs are simply an opening gambit in a general renegotiation and rebalancing of the US terms of trade. Those who believe that the tariffs have longevity because they are mistakenly intended to create a new long-term government revenue stream to finance the massive US debt and enable domestic taxes to be cut, may have a far more sober view," he said.
He added: "Oddly, unlike most other countries, the US has a positive trade balance with the UK amounting to about $12 billion according to US figures. Hence, by the US’s overly simplistic calculations and logic, the UK should put a 9% tariff on US goods. Instead, the US has imposed a 10% tariff on all UK goods along with the 25% tariff on automobiles."
Boettcher said a well-respected economist had suggested to him that he feared the damages already being wrought were irreversible given the speed at which ex-United States trading blocs are forming and re-aligning.
"In his view, a great change is taking place that dwarfs the impact of the Global Financial Crisis. These tariffs are more likely to make China and Europe stronger. I take this to mean that China will consolidate its trade with emerging markets supplanting US influence, and Europe will turn inward to develop its own internal markets which remain fragmented. The UK sits awkwardly in this dynamic given its strategy of appeasement and the pursuit of an elusive US trade agreement of any dimension. Increasingly, the focus of real growth in the world economy is not likely to be as America-centric as in the past. Let’s hope that UK government ideology does not bind us to an uncertain status quo."
James Roberts, United Kingdom economist at Avison Young, said: "Traditionally the UK is a preferred target for US investors looking to buy overseas."
He added the new tariffs are most likely to lead to higher inflation in the US, so the Federal Reserve will be slower to cut interest rates, putting pressure on all major central banks, including the Bank of England, to be more cautious on reducing rates: "That will probably mean property yields in most advanced economies will be slower to harden than was previously assumed."
But Roberts says higher Fed interest rates should also mean a strong United States dollar at a time when the American economy is expected to slow.
"The uncertainty surrounding Trump’s economic policies is another push for American investors to build up portfolios abroad. So, further down the line I think UK property investment could gain from an influx of American capital."
Mat Oakley, director commercial real estate at Savills, said it was difficult to work out the likely outcomes just yet: "The best I can say is that some sectors and markets will be hit less hard, e.g. service sector exporting economies like the UK. However, even for them it's still negative news both in terms of weaker global GDP growth feeding through to the occupational markets, and renewed uncertainty as investors wait to see what the final deal will be for their country or sector."