Trump REITurns: How the new president will impact listed U.S. property

In 2024, the Dexus Global REIT Fund produced growth of 9.90% and distributions of 4.57% for a total return of 14.46% . With a 68% weighting to the U.S. market and a new presidential term imminent, it’s time to examine the potential impacts of the new administration.

It would be convenient to believe that political considerations are remote from investment decisions. Unfortunately, this is rarely so, with the incoming Trump administration a case in point.

Whilst Trump’s first presidential term was chaotic, the new administration's policies could significantly reshape the U.S. investing landscape. With 68% of the Dexus Global REIT Fund allocated to the U.S., it’s time to take a look at the potential impacts.

Since 2016, U.S. industrial policy has been focused on mid to high-end manufacturing and a ‘reshoring’ bias. This remains the case. Previous administrations established bipartisan initiatives, including attractive incentives and subsidies, to return semiconductor, automotive and battery production to American soil. As its original architects, the incoming Trump administration is unlikely to change course.

Paired with the growth of e-commerce, demand for high-quality industrial space has therefore increased. More recently, however, large numbers of newly built industrial buildings in the States have come into the market giving tenants ample choice. Together with concerns over new and higher tariffs, tenants are taking longer before renting new space.

There is less concern over the booming datacentre sector. With widespread applications and geopolitical implications, maintaining U.S. leadership in artificial intelligence (AI) remains a strategic government priority.

AI’s energy consumption and rapid adoption, however, is placing pressure on infrastructure, in transmission and overall capacity.

For investors in the sector—the Dexus Global REIT Fund has an 11% exposure to datacentres—this is good news. Demand for power and the difficulty of adding new supply has already greatly benefited existing owners.

We expect this to continue, with the fund positioned in global developers of AI datacentres like Digital Realty Trust (NYSE:DLR) which leased more in Q3 2024 than all of 2023 ($460 million USD). Indeed, our overweight position in datacentres made a valuable contribution to the Fund’s 14.46% total return in 2024¹.

  (Source: Digital Realty quarterly results, DXAM) 

The eventual impacts of the new administration’s proposed deportation policies are less clear, although shares in private prisons have soared as investors anticipate a surge in demand for detention facilities.

As with the proposed wall in Trump’s first term, mass deportations might be more a rhetorical ambit than real policy. A Trump phone call with Mexican President Sheinbaum suggests the proposed 25% tariff on Mexican imports might be more an example of the former rather than the latter. 

Should substantial tariffs and deportations eventuate, labour shortages and cost increases, especially in labour-intensive sectors like construction, hospitality and healthcare, are likely. This is not of great concern for the Fund’s portfolio position in seniors’ housing, a unique REIT sub-sector unavailable in Australia. 

The 2020 Census revealed that one-in-six Americans was 65 or older. Consequently, we remain firmly positioned in seniors housing as it benefits from a V-shaped recovery. Pent-up demand is pushing occupancies to all-time highs while costs for contract labour have normalised. Due to decade lows in building, future cost pressures will likely be offset by higher room pricing and dwindling availability.

Wage growth, rising home prices and high mortgage rates should also bolster demand for multifamily housing, especially in Sunbelt markets where jobs and population growth are strongest.

High-barrier coastal markets epitomised by AvalonBay Communities (NYSE:AVB) (see Global REITs: Leaning into the recovery phase - Part 2) remain attractive. In these areas, new building is limited, although growth may be tempered by other housing initiatives and the possible return of higher inflation.

Changes to tax policy are plausible. The new administration is likely to extend previous tax cuts and introduce new tax exemptions on social security, overtime pay and tip income.

This should result in additional consumer spending, boosting the retail, hotels and gaming sectors. Retailer demand is such that occupancy rates among traditional sectors are near record highs. Beneficial tax changes could push it higher yet, although increased tariffs, should they eventuate, might offset their impact.

The Fund is therefore well positioned, favouring high quality grocer-anchored and lifestyle centres which enjoy strong foot traffic and retailer demand. In the office sector, the newly established Department of Government Efficiency (DOGE) aims to reduce deficits and boost growth through deregulation, spending cuts and slashing bureaucracy, although not being a government department may hamper the achievement of these objectives.

Still, long-term employment reductions, especially around Washington D.C., are likely. DOGE claims Federal agencies are using just 12% of their D.C. office space. Meanwhile, Sunbelt office leads the country in utilisation, occupancy and leasing while premium office faces shortages due to strong job growth and return to office policies.

This is similar to Australia and elsewhere, where high quality office space is performing far better than lower grade properties. We believe conservatively geared REITs like Cousins Properties (NYSE:CUZ), with newly built and highly amenitised urban Sunbelt office, can play offense while many others are stuck with higher vacancies and refinancing worries.

Whatever the new administration decides, we consider that the Dexus Global REIT Fund is well positioned to deal with it. Whilst the imposition of import tariffs and a possible trade war are possibilities, we are vigilant to the risks and awake to the opportunities.

Our core positioning, based on strong fundamentals and enduring trends, offers a sound foundation: AI demand is such that datacentres will continue to prosper; manufacturing and e-commerce will need more logistics space; aging boomers will need more retirement options; and U.S. families need affordable housing. That stands us in good stead.

Leveraging their strong balance sheets, resilient and well-managed global REIT portfolios are leaning into the recovery phase of the current market cycle. No matter what policies the new U.S. administration adopts, the prospects for future rent increases and attractive ongoing performance are in place.