The stock market has recovered the losses of the early 2020 COVID-19 crash and then some. As of Jan. 22, the S&P 500 is up by nearly 16% over the past year. However, not all areas of the stock market have recovered just yet. Real estate remains a big laggard, with the Vanguard REIT ETF (VNQ -0.97%) down by 11%.

Some real estate subsectors have done even worse. Two of the most beaten-down areas of the real estate sector are office and retail, and there could be excellent opportunities for patient long-term investors in both. Two particularly interesting real estate investment trusts, or REITs, to put on your radar are office REIT Empire State Realty Trust (ESRT -0.22%) and outlet shopping REIT Tanger Factory Outlet Centers (SKT -1.07%). But which is the better opportunity right now?

New York City with Empire State Building in center.

Image source: Getty Images.

Why has the owner of the Empire State Building performed so poorly?

Empire State Realty Trust owns the iconic Empire State Building, as well as a portfolio of mostly office real estate in the New York City area with a total of more than 10 million square feet of space. It also operates the observatory atop its namesake skyscraper, which has been a must-do tourist attraction for decades (at least when there isn't a pandemic).

Speaking of COVID-19, it hit Empire State's stock price hard. Even after a sharp rebound when coronavirus vaccine news started to emerge, shares are still down by more than 35% from a year ago. The general fear is now that companies have allowed so many employees to work from home, and many will continue to do so to some degree, that demand for urban offices will plummet.

To put it mildly, I don't buy that. In fact, with $1.7 billion in liquidity (including $553 million in cash), Empire State sees a window of opportunity to take advantage of the depressed valuations in the New York City office market. It recently hired a Chief Investment Officer for the first time ever and just authorized a new $500 million buyback program.

Tanger Outlets has rallied on strong results, but there could still be a big long-term opportunity

Tanger Factory Outlet Centers is the only pure-play outlet mall REIT in the market, and like Empire State, its shares haven't fully recovered from the COVID crash, down 16% over the past year.

However, unlike Empire State, which is seeing very few people in its offices and at the observatory, Tanger's business has recovered quite nicely. After all, outlet malls are mostly open-air and are far more conducive to social distancing than many other types of real estate. The company recently reported that customer traffic in the fourth quarter of 2020 was about 90% of 2019 levels, and with the business producing positive cash flow, the company decided to reinstate quarterly dividend payments. (Note: Empire State has already announced its dividend suspension remains in effect through the first half of 2021.)

To be fair, the news hasn't all been good. Several of Tanger's top tenants have declared bankruptcy due to the pandemic, and portfolio occupancy is 91.9%, the lowest level since Tanger's 1993 IPO. However, the company is taking proactive steps to lease up its space, and with more than $680 million in liquidity (Tanger's entire market cap is $1.25 billion), it also has tons of room to pursue opportunities that arise.

Which is the better opportunity right now?

To be sure, both of these stocks look like compelling opportunities for long-term investors with patience and a high level of risk tolerance. I own both in my personal portfolio and have no plans on selling either anytime soon.

That said, if I were to choose one today, I would have to go with Empire State Realty Trust. I simply feel that the market assumes (correctly) that demand for outlet shopping is going to rebound strongly after the pandemic, but is dramatically overestimating the long-term drop in office space demand. Studies have shown that most workers prefer a hybrid model of both remote and office work. Plus, the company's observatory recently completed a massive capital project and has monster revenue potential as tourism returns to New York City.