Since ”Liberation Day” on April 2nd, we have witnessed numerous and unpredictable shifts in trade policy. The one certainty is that any facts adduced today are likely to be overcome by events tomorrow. Accordingly, in our recent paper, Newmark Research seeks to not only lay out the facts as they stand today but also to provide reasoning frameworks for how present and future developments might ricochet through to the economy, the markets, occupier decision-making, and ultimately to the various property sectors.
Economic Turbulence
U.S. tariffs have increased from around 3 percent to 24.8 percent on a trade-weighted rate—the highest in over a century—and would climb to 32.8 percent if all proposed levies were implemented. The Yale Budget Center conservatively estimates that tariffs will cause the personal consumption expenditures price index to rise 3 percent, cutting household purchasing power by $4,900 annually. In the most recent Wall Street Journal survey of economists, respondents uniformly increased 2025 inflation estimates and reduced ones for growth; 45 percent said they expect the economy to fall into recession in the next month. Economic policy uncertainty is every bit as important as the direct impacts of tariffs at this stage, and policy uncertainty has recently set a record, outstripping even 2008 and 2020 levels. Uncertainty forces both firms and households to rethink investment and spending, a recipe for slower economic growth.
Equity and debt markets have swung wildly since “Liberation Day” with the S&P 500 down as much as 12.7 percent in intraday trading while the 10-year Treasury yield fell sharply before rebounding to 4.56 percent at peak. Since mid-April markets have become more optimistic that deals will be concluded quickly, with the S&P 500 flat vs. its 4/2 closing price while the 10-year Treasury yield has retraced to 4.24 percent. The recovery in financial markets is likely fragile however, as optimism can only sustain investors for so long.
CRE Sector Impacts
Office: Despite recent improvement in office leasing fundamentals, any economic slowdown would threaten office demand by reducing already challenged office-using employment growth (+0.1 percent year-over-year). Trophy buildings in dynamic corridors are likely to prove the most resilient due to the lower price sensitivity of their tenant base. Meanwhile, Class B office buildings tend to have more economically vulnerable tenant profiles, but higher uncertainty and lower growth would also tend to reduce tenant migrations to higher-quality buildings. It follows that commodity Class A buildings are likely most exposed in a downturn.
Industrial: Early 2025 leasing momentum may be disrupted by tariff uncertainty, particularly for consumer discretionary sectors. West Coast ports, hit hard by Chinese tariffs, face large impacts. Higher input prices combined with potentially lower consumer demand would tend to depress leasing demand. More positively, Newmark Research is tracking $141 billion in new U.S. manufacturing investments announced year-to-date. A long-term pivot towards more domestic production would bring new demand for space over time, though reduced U.S. export competitiveness seems likely in the near term.
Multifamily: Reduced disposable income may slow household formation and rent growth, but existing multifamily assets could gain from a construction slowdown due to costly materials and labor. Multifamily demand has been trending historically strong, aided by a large gap between the cost of owning vs. renting. This dynamic is likely to persist. At the same time, construction activity is rapidly attenuating, presaging further reductions in vacancy. As a result, existing multifamily assets are defensively positioned for a more uncertain and weaker economic environment.
Retail: Consumer sentiment has fallen sharply. High-income households are generally shielded from economic turbulence, but drop-offs in asset values could cause them to pause big-ticket purchases. Middle and low-income households will be the most exposed to price increases and potential layoffs and will likely “trade down” on goods to ease the loss of spending power. Retailers, especially those in the consumer discretionary category, are likely to hesitate on expansion amid supply chain strains, but grocery-anchored centers and discount brands are liable to outperform. Additionally, center and especially mall success increasingly depends on ongoing property investment. Institutionally owned properties may outperform in a weaker environment due to their greater financial resilience and resources. However, at this writing, leasing remains stable, even as foot traffic to some centers has eased.
Life Science: Tariffs raise costs for imported pharmaceutical ingredients (70 percent of U.S. supply), pressuring biotech firms and compounding the impact of reduced Federal R&D support. Onshoring of pharmaceutical production, however, could benefit key U.S. life science clusters, with firms like Novartis increasingly investing in domestic manufacturing facilities.
Data Centers: Steel tariffs (up 30 percent) and pricier hardware delay projects and strain budgets. Long-term A.I. infrastructure demand endures, potentially shifting manufacturing to the U.S. or trade-friendly nations like Mexico.
Capital Markets Under Strain
Tariff-induced uncertainty has disrupted CRE capital markets, with borrowers adopting a cautious stance and commercial mortgage-backed securities (CMBS) spreads widening, particularly for BBB-rated tranches. While liquidity persists, debt pricing faces pressure from expectations of higher base rates, driven in part by reduced foreign demand for dollar-denominated assets as trade deficits shrink. A capital surplus—where foreign demand for U.S. assets fuels investment—could diminish, pushing up Treasury yields and CRE borrowing costs.
Transaction volumes hinge on policy clarity. High-quality, performing assets may see reduced turnover, as core owners hold firm amid higher construction and appliance costs, squeezing returns for value-add strategies. Lower-quality assets, however, could face distress, particularly if banks tighten terms on commercial and consumer loans due to broader economic stress. Lenders, previously flexible with distressed CRE borrowers, may grow less accommodating, potentially increasing forced sales. Multifamily remains relatively insulated due to declining supply and short-term lease flexibility, while retail and industrial face greater exposure to consumer spending and tariff costs. Long-term, a sustained inward-looking trade environment could reduce liquidity, raise interest rates, and depress CRE values, though negotiated trade deals could mitigate these risks.
Looking Ahead
The future of U.S. tariff policy remains uncertain, with three potential trajectories:
Unilateral reduction is improbable without significant pushback from Congress or courts. Legal challenges, citing the International Emergency Economic Powers Act’s misuse, face uncertain outcomes due to conflicting constitutional principles, and congressional action would require an unlikely two-thirds majority to override a presidential veto.
Negotiated moderation, signaled by a 90-day pause on reciprocal tariffs and exemptions for electronics, is plausible but faces logistical hurdles. Negotiating dozens of trade deals within 90 days is daunting, and the U.S. seeks more than tariff reductions, potentially demanding alignment on Chinese tariffs. The success of initial deals—with Japan, South Korea, Vietnam, or India—will set the tone, but China’s role remains a wildcard, with recent de-escalation hints suggesting flexibility.
Escalation, as seen in U.S.-China tariff hikes (145 percent and 125 percent, respectively), risks prolonged trade wars, though both sides show signs of softening. If trade negotiations fail, the effective tariff rates could rise sharply, and trade retaliation by a wider group of partners would become more likely, compounding economic shocks.
Policy offsets could temper impacts. Extending the Tax Cuts and Jobs Act ($3.8 trillion) and new tax cuts ($1.5 trillion) may boost growth, particularly if immediate expensing of capital investments is made permanent, potentially offsetting tariff-driven GDP declines (estimated at 0.6–0.8 percent). Deregulation in finance, energy, and technology promises long-term gains but offers limited short-term relief.
CRE stakeholders must embrace agile scenario planning, regularly reassessing portfolios to navigate this volatile landscape. Newmark pledges ongoing updates to guide clients through the storm.
