What happened

The S&P 500 was roughly 2% higher as of 11:30 a.m. EDT on Tuesday, but one of the most beaten-down parts of the market is soaring.

Real estate investment trusts, or REITs, that specialize in retail properties have been hammered in the coronavirus sell-off, and it's easy to see why. Most nonessential retail businesses in the U.S. are currently closed, and there are serious concerns about whether tenants will be able to pay their rent.

Family shopping in a mall.

Image source: Getty Images.

However, retail REITs are one of the best-performing parts of the market on Tuesday. Leading mall and outlet-center REIT Simon Property Group (NYSE:SPG) was higher by 14%, shopping center REIT Kimco Realty (NYSE:KIM) was up 10%, and Seritage Growth Properties (NYSE:SRG) gained 13%. Most other retail REITs were making similar moves to the upside.

All are still far from their pre-crash highs. Simon is still down about two-thirds from its 52-week high, and Seritage is still more than 75% down from where it was trading earlier this year, but this is certainly an encouraging move for investors.

So what

Since the COVID-19 pandemic began, we've certainly seen good news on the economic front, such as the $2 trillion CARES Act stimulus package. But we're finally starting to get a glimpse of good news about the spread of the virus itself for the first time since the outbreak began on U.S. soil:

  • Just to name a few of the promising news stories, intensive-care admissions and the number of patients needing ventilators in COVID-19 hot spot New York State are starting to decline.
  • New Jersey, also one of the U.S. hot spots, is seeing the curve of infections begin to flatten.
  • New infection numbers in European hot spots like Italy are starting to decline.

Retail REITs had been pricing in a lot of uncertainty in their stocks. Economic stimulus helps to a point, but until these companies can open their properties, they'll be on thin ice when it comes to covering their expenses. The earlier that Simon can open its malls and Kimco's nonessential tenants can open their doors, the better off these companies will be.

Now what

To be clear, we're not out of the woods just yet. There are still a tremendous number of people getting sick and dying from COVID-19 in the U.S. and abroad. Even in a best-case scenario, it'll still take a significant amount of time before the economy can get back to a normal level of functioning.

Having said that, the recent news on the virus is certainly more encouraging than anything we've seen in the last few weeks, so investors are getting a bit more hopeful that we'll be able to avoid keeping the economy shut down through the summer and into the fall. I'd still expect significant volatility in these stocks until the pandemic truly starts to subside, but this is definitely a positive development for owners of retail real estate.