How Do Tariffs Impact Southern California's Industrial Real Estate Values?
Evidence from Stock Market Data Suggests a 13% Decline in Warehouse and Logistics Asset Values (by Marco Giacoletti and Davide Proserpio)
Recent shifts in U.S. trade and tariff policy have the potential to significantly reshape the spatial distribution of economic activity across the country. While some regions may stand to gain over the long term, others could face slower growth and short-term corrections in asset values.
Industrial real estate in Southern California is likely among the commercial real estate segments most exposed to the current set of U.S. tariffs (as of the time of writing). This sector relies heavily on warehouses and logistics operations serving the Ports of Los Angeles and Long Beach, as well as the broader Los Angeles metropolitan area. These are key entry points for Chinese goods into the United States. Although some industries and products are exempt, most Chinese imports are currently subject to tariffs of up to 145%. While these measures may prove to be just temporary, it is reasonable to expect some degree of continued trade friction between China and the U.S., which could dampen import volumes.
Estimating the impact of these shifting conditions on real estate asset values is difficult, particularly in commercial sectors like warehousing, where transactions are infrequent.
However, one of the key players in Southern California’s industrial real estate market is Rexford Industrial Realty Inc. (ticker: REXR), which is a publicly listed Real Estate Investment Trust (REIT). It specialized in holding high-quality assets across the main Southern California markets. Indeed, based on recent financial reporting by Rexford, the entirety of its portfolio of properties is located in Los Angeles County, Orange County, San Diego County, the Inland Empire, and the rest of Southern California; 20.3% of the REIT’s assets are used for transportation and warehousing, 23.5% for manufacturing, and 22.1% for wholesale trade.1
By leveraging publicly available stock price data, information from Rexford’s balance sheet, and a set of reasonable assumptions, we can estimate the decline in the implied value of its assets based on recent fluctuations in its share price.
To start, we plot the evolution of Rexford’s stock price from March 24 to April 18, alongside two benchmark indices. The first is the S&P 500, which reflects the performance of the largest publicly traded U.S. companies. The second is the FTSE NAREIT All REITs Index, which captures the performance of all publicly listed REITs in the United States. To facilitate comparison, we express all series as percentage changes relative to price and index values on April 2, which is the date on which the first set of new sweeping tariffs was announced.
The S&P 500 fell by about 10% in the days following the April 2 announcement. However, it rebounded the following week after most of the harshest duties were suspended. The REIT index followed a more moderate trajectory, with a gradual decline and subsequent recovery.
In contrast, Rexford’s stock experienced a sharp initial drop, a partial rebound, and then another decline, driven by the news that tariffs would remain in place for Chinese imports and by the subsequent escalation of the U.S.–China trade dispute. Since April 10, Rexford’s stock price has been trading at 16-18% below its value on April 2.
This pattern is consistent with Rexford’s high exposure to trade with China. Since the company’s portfolio of operating real estate assets is representative of the industrial sector in Southern California, and in particular of its best and most productive assets, it is reasonable to interpret the decline in Rexford’s valuation as reflecting a broader shift in market expectations about future growth prospects and risk in the entire region’s industrial real estate market.
How, then, can we translate stock price fluctuations into estimates of changes in the underlying value of industrial real estate assets?
The figure below illustrates our approach in an intuitive way, using a simplified depiction of Rexford’s balance sheet. On the left-hand side are the company’s assets, which consist primarily of operating real estate properties, along with other assets such as cash, land, and properties under development. On the right-hand side are the liabilities, comprising both debt and shareholders’ equity. The values of assets and liabilities have to match to satisfy the balance sheet identity.
If we can estimate the value of the company’s equity, debt, and other non-operating assets, we can infer the implied value of its operating real estate assets as:
We can use the formula above to mark-to-market operating real estate assets as stock prices adjust. Indeed, the figure also shows in a stylized way how a drop in the stock price, by reducing the stock market capitalization and thus the equity of the REIT, coincides with a drop in the value of the REIT’s operating assets. In principle, we can then mark-to-market Rexford’s operating real estate as stock prices fluctuate.
For our calculations, we use the simplifying assumption that the values of other assets and liabilities remain relatively stable. While this assumption is admittedly strong, it is acceptable in this context. The value of most other non-real estate assets, such as cash and receivables, are unlikely to be directly affected. Moreover, despite the decline in Rexford’s stock price, the company’s leverage remains manageable, and there is no evidence of a material change in its credit risk since March.
We can then conduct our calculations using data from Rexford’s most recent earnings release, as of April 16. Rexford has approximately 227.4 million fully diluted common shares outstanding. Multiplying this share count by the stock price yields the company’s total market value of common equity. Total debt and liabilities are equal to approximately $4.3 billion.2
Finally, Rexford’s other assets include short-term assets, such as cash, receivables, and other current items, as well as real estate under construction and land held for development. Short-term assets have a book value on the balance sheet of approximately $1.2 billion. Valuing construction in progress and development land is more complex. While these assets are recorded on the balance sheet at $386.7 million based on historical acquisition and construction costs, their market value is likely higher. For example, Green Street Advisors (a real estate intelligence company) valued these assets at $1.3 billion as of the end of 2024. Our calculations below rely on book values for simplicity, though results are similar when using Green Street’s estimates.
The figure below shows fluctuations in the derived market value of Rexford’s operating real estate for each day from March 24 to April 18. We report percentage changes in values with respect to market close on April 2.
The implied value of Rexford’s operating real estate assets declined by 15% following the April 2 tariff announcement, before stabilizing at a level roughly 13% below its pre-announcement value. This pattern suggests that the market has priced in a significant discount on Rexford’s assets in response to heightened tariff-related uncertainty.
Given that Rexford owns some of the highest-quality industrial real estate in Southern California, it is plausible that the discount applied to other, lower-tier industrial assets in the region could be even greater.
While this insight is compelling, it is important to acknowledge its limitations. First, our estimate of operating real estate asset values is derived from market-implied equity valuations. If equity investors are overreacting or underreacting to changes in Rexford’s future prospects, our inference may be biased. As such, the results should be interpreted with caution and viewed as indicative rather than definitive.
Second, this evidence is based on current market expectations. It may be subject to change if there is a sudden breakthrough or shift in policy regarding U.S.–China trade negotiations. Nonetheless, the analysis underscores the extent to which the value of warehouse and logistics assets in Southern California is tied to the trajectory of these negotiations.
Finally, our calculations rely on key assumptions regarding the valuation of non-real estate assets and liabilities on Rexford’s balance sheet. As discussed earlier, real estate under construction and land held for development are difficult to value. Moreover, their market values may also have been affected by the tariff announcements. Similarly, the value of liabilities may have fluctuated in ways we cannot fully account for, as they are not marked to market on a daily basis. However, while these factors may influence the precision of our estimates, they are unlikely to overturn the main conclusion.
See Rexford’s 2024 10-K filing, available from the investor relation’s section of its website.
This estimate also includes non-controlling interests in subsidiaries and preferred stocks, which are not part of common equity.