Searching for Tariff Resistance
Main Tariff-Resistant Tenants
Many investors are asking themselves where they can find tariff-resistant tenants in order to maintain steady performance. Tariffs will impact all the CRE sectors, so it is necessary to know which tenants will withstand this activity. Investors searching for tariff-resistant tenants should focus on industries that are less impacted by global supply chains, or rely more on domestic production and consumption. Below are some categories to consider.
Essential Retail
Grocery stores and pharmacies will always provide necessary goods and services for consumers. Regardless of economic downturns or price changes, consumers will continue to shop at these locations for necessities.
Essentials like food and medication are less influenced by tariffs because they are often produced domestically. Many grocery items, such as produce and dairy, are produced locally, which are tariff-resistant. Tariffs on imported goods, like specialty items, may cause an increase in costs, but core products remain affordable.
Discount and Dollar Stores
In economic uncertainty, consumers often turn to discount retailers. These stores can adapt their supply chains quickly to source cheaper alternatives. A focus on low-cost essentials makes them less vulnerable to price hikes.
Flexible sourcing allows these kinds of stores to be less affected by tariffs. Discount stores, such as Dollar General and Family Dollar, often import their goods from a variety of countries, which makes them more tariff-resistant. Additionally, bulk buying and cost-efficient supply chain management at these stores aid tariff impacts.
Service-Oriented Tenants
Demand for personal care, fitness, and healthcare remains relatively stable. Tenants like Planet Fitness, Great Clips, and Urgent Care Clinics see consistent demand from consumers that prioritize their services.
Additionally, services provided by these tenants are typically not reliant on imported goods. The main expenses for service-oriented tenants are labor and utilities—not imported merchandise. Even if the price for supplies increases, the impact on overall profitability is minimal.
Industrial and Logistics Tenants
Industrial properties housing logistics, warehousing, and distribution are crucial as e-commerce grows. Tenants like Amazon, UPS, or FedEx may experience cost changes, but their necessity in supply chains keeps demand high.
Distribution hubs serve domestic markets, so the impact of tariffs on final goods is limited. Diversified global supply chains also help mitigate risks in activity for these kinds of tenants.
Medical and Healthcare Tenants
Healthcare services are essential regardless of economic conditions. Locations like hospitals and outpatient clinics have a limited reliance on imported goods compared to retail or manufacturing. The strong and consistent demand for medical services means long-term lease stability is achievable for these tenants.
Some medical equipment and supplies may undergo price increases, but healthcare costs are typically passed on to insurers and patients.
Tenants Most Affected by Tariffs
Retailers Selling Imported Goods
Electronic companies and clothing retailers face increased costs as they import their products, which may reduce profit margins or increase prices for their goods.
Manufacturers Dependent on Imported Raw Materials
Tenants like auto repair shops, or manufacturers relying on steel and aluminum imports, are hit hard when tariffs are in place.
Specialty Retailers and Restaurants
Restaurants relying on imported ingredients, such as seafood, and specialty stores selling imported products will see cost increases.
Why Investors Should Focus on Tariff-Resistant Tenants
In times of economic uncertainty, tenants that can absorb or bypass increased costs are more likely to remain profitable. Stable businesses are also less likely to default or break leases, and essential service tenants tend to have more reliable cash flow, safeguarding rental income.
By prioritizing industries with domestic production, essential services, and flexible supply chains, investors can mitigate risks associated with tariff-related economic shifts.
