The United States made a step forward in efforts to reshape global trade with the May 8 announcement of its first trade agreement, inking a deal with the United Kingdom. Yet uncertainty remains the word of the hour, following a tougher stance on trade from the current U.S. administration. The executive order for a baseline 10 percent tariff on all countries took effect April 5, whereas additional reciprocal tariffs applied to many countries are on a 90-day pause—now including China.
Urban Land: U.S. trade policy has the potential to create broad ripple effects across the commercial real estate market. From your perspective, what potential impact are you most concerned about, and what near-term impacts are you already seeing materialize?
Clifton E. “Chip” Rodgers Jr., senior vice president, The Real Estate Roundtable
For commercial real estate, this rapidly evolving situation has created headwinds for investment performance. The new tariffs are expected to increase construction costs, especially on construction materials such as steel, aluminum, and other imported goods. This can delay new developments, reduce margins for developers, and lead to higher rents as landlords attempt to pass costs to tenants. Additionally, uncertainty around trade policy may discourage foreign investment, particularly in markets dependent on international capital.
While industrial and retail are expected to be hit hardest, this is also a concern for the nascent office market, which has seen a rebound in certain locations. Many of these buildings require extensive refurbishment. For those obsolete buildings, conversions to multifamily use are attracting increasing interest and ultimately contributing to the overall supply of housing. It will also likely slow the construction of new housing and affordable units. Beyond affecting the investment and construction landscapes, tariffs could also escalate energy costs by disrupting supply chains and raising prices for essential power grid components, which means that prioritizing energy efficiency measures for buildings, like EPA’s Energy Star program, is more important than ever. Although across-the-board tariffs don’t always come with a measurable goal, we look forward to working with policymakers toward a more defined strategy that encourages economic growth, creates jobs, and sparks investment in American property markets.
Melinda McLaughlin, senior vice president, global head of research at Prologis
For logistics real estate, the direct impact is less than one might think, because consumption drives U.S. logistics real estate demand. About 75 percent of space supports regional and local distribution, and only roughly 15 percent is tied to trade-oriented flows. Most users face minimal tariff exposure—about half [of them] source domestically; 20 to 25 percent from Asia, ex-China; and only 5 to 10 percent remain heavily China-dependent.
Even major port hubs (e.g., southern California, New Jersey) serve e-commerce, retail restocking, and food and beverage distribution, while truly trade-dependent centers (e.g., Savannah, Memphis, Charleston) see greater exposure. Although economic headwinds will indirectly affect demand, the sector’s resilience stems from an overweight to essential goods purveyance (e.g., food/beverage and consumer products), industries that may indirectly benefit from tariffs, such as auto parts, and secular growth categories, [such as] e-commerce.
Near-term uncertainty—more [so] than tariffs—is delaying long-term leases and capex decisions. Yet new leasing and build-to-suit agreements have been signed since April 2, driven either by the need for flexibility or growth requirements. Longer-term strategies (two to five years) include nearshoring to Mexico and alternate Asian sourcing. On the supply side, many developers have paused projects amid cost volatility and a widening gap between replacement-cost rents and market rents, further slowing new construction and raising the prospect of space scarcity in the medium term.
Henry Chin, PhD, global head of research at CBRE
Uncertainty is anathema to most businesses and economies. It makes forecasting challenging, if not impossible, and therefore undermines business confidence, planning, and investment.
In commercial real estate, both occupiers and investors get anxious when politics and policy get volatile and the outlook [gets] cloudy. That’s what we’ve seen in recent months. In the short term, business and consumer sentiment have weakened, and many transactions—in commercial real estate and other sectors—have been put on hold. Recent [movement in] 10-year Treasury yields are a headwind for investors trying to underwrite transactions. Meanwhile, construction costs have risen by roughly 35 percent since 2020. That, coupled with ongoing uncertainty, will hinder speculative construction activity for the foreseeable future.
Given the latest trade negotiation news between U.S. and China, we do expect to see de-escalation of the tension.
There are opportunities in every situation, though. We anticipate that occupiers will continue to gravitate to the best quality properties across all commercial real estate sectors. The current market may yield opportunities to lease or buy quality space at attractive prices. Investors should look for long WALE [weighted average lease expiry] properties, which often are [ones] owned by real estate investment trusts, with tenants committed to long-term leases. Additional opportunities likely can be found in public-to-private transactions and deals involving motivated sellers. And long-term structural plays, such as investing in the data center sector, will thrive.
In the financing markets, traditional lenders are cautious on financing commercial real estate—except for multifamily—due to the uncertainty in the market. That is creating opportunities for alternative lenders to step in and reap better returns through the higher rates.
Daniel Aldrich, director, MS Resilience Studies Program, and Dean’s Professor of Resilience, Northeastern University
The recent interim trade agreement between the U.S. and China, which significantly reduces tariffs from 145 percent to 30 percent on Chinese imports for a 90-day period, represents a major deescalation in trade tensions that benefits commercial real estate markets. With this temporary trade truce, the immediate threat of dramatically rising construction costs from heavily taxed steel, aluminum, glass, and manufactured components has diminished, allowing developers to proceed with greater confidence and less need to compromise on quality or sustainability features. This cooling of trade tensions particularly benefits affordable housing initiatives and community-focused developments that operate on tight margins, reducing the risk that cost pressures would disproportionately drive investment toward luxury properties.
Market participants who had been exhibiting increased caution are likely to respond positively to this 90-day trade pause, though some uncertainty remains about long-term trade policy. While developers may still incorporate contingencies into their projections, the substantial reduction in tariff rates allows for more accurate cost estimates and potentially faster transaction volumes, especially for industrial and logistics properties tied to international trade. The agreement helps prevent the potential acceleration of gentrification that might have occurred if development became concentrated in higher-end projects, while also supporting progress toward climate goals by reducing cost pressures that might have led developers to deprioritize green building technologies and materials that often require higher upfront investment but deliver long-term environmental benefits.
Kenneth D. Simonson, chief economist, Associated General Contractors of America
Restrictive trade policy poses twin threats to [commercial real estate]. Contractors have already been inundated with “Dear Valued Customer” letters announcing price increases, some explicitly tied to actual or anticipated tariffs. These increases pose a hardship on contractors that have already committed to build a project at a fixed price, while making it difficult to price upcoming work. But the greater threat is from retaliatory actions by trading partners and their residents. U.S. exporters will be less competitive or may be shut out of markets altogether, while businesses such as hotels will suffer, even if they aren’t involved in exports. The result: a potentially widespread decline in [commercial real estate] values and construction.
Ryan Severino, CFA, managing director, chief economist and head of research at BGO
My main concern is pretty broad. We were likely headed for a great investment environment for [commercial real estate] in the U.S. before the imposition of higher tariffs. Inflation was slowing, interest rates were declining, and economic growth was above capacity. That is an incredibly powerful force for returns. The last time the market saw those three forces together in significant magnitude was back in the 1980s, which was the greatest era of [commercial real estate] returns in the U.S. in recorded history. But now, tariffs are likely to cause inflation to reaccelerate a bit, interest rates to come down more gradually and cautiously, and economic growth [to] lower. That takes some of the wind out of the sails of the [commercial real estate] market recovery. This will be a good decade for [commercial real estate] returns because, over the medium term, those three fundamental forces will remain in place. But it will be difficult for this decade to now challenge the 1980s as the champion of [such] returns, because each of those [forces] will perform less well than they otherwise would.
Relatedly, with the macro-environment more unfavorable, this shifts the relative contributions of systematic and idiosyncratic factors that drive [such] returns. In a world without escalating tariffs, relatively more of what drives total [commercial real estate] returns would have come from systematic factors. Now, relatively more [are likely to] come from idiosyncratic factors [such as] property type, location, tenancy, etc. And relatedly, we will have to do more homework on these factors and deals, asking questions we have either never asked, or rarely asked, like, “Where are the tenants’ products made? Do they use imported intermediate goods? Are they subject to tariffs, and at what rate? Will demand for those goods fall? Could they relocate manufacturing to the U.S.?” Maybe all of this goes away sooner, rather than later, but until then, the challenge of [commercial real estate] investing is somewhat greater.
Rich Hill, global head of real estate research and strategy at Principal Asset Management
Private commercial real estate markets face a fresh wave of uncertainty, following the announcement of sweeping new tariffs on U.S. imports that have been on-again and off-again in recent days. When [we are] looking at the potential impact on the [commercial real estate] market, the base case calls for unlevered [commercial real estate] total returns to muddle along as income returns help offset a decline in capital returns. The bull case calls for high-single-digit total returns as tariff tensions de-escalate. The best returns historically occur in the aftermath of significant drawdowns, like what has already occurred. The bear case sees total returns falling an additional [minus]10 percent as the market prices capital return declines, much like [what happened in] the S&L crisis or Great Financial Crisis, as interest rates are shocked higher.
