Tariffs & Turbulence: US Tariffs & their impact on CRE markets
By Gautam Khosla
The tariff policies introduced by the Trump Administration in early 2025 have significantly and quickly affected most international markets. Regarding the commercial real estate (CRE) sector, the impact is both immediate and long-term, leading to financial disruptions in the short run while potentially sparking the possibility of a resurgence of the American manufacturing sector.
Short-Term and Long-Term Uncertainty
Economists estimate that tariffs could generate $400 billion in revenue, equivalent to 1.3% of the United States’ gross domestic product (GDP), the largest increase in tax revenue since the Revenue Act of 1968 (Feroli, JP Morgan). However, this revenue comes at a cost. Inflation could rise further by 1-1.5% this year, disposable income is expected to shrink, and recession risk is climbing significantly.
This economic pressure is directly impacting consumer spending and is clearly affecting sectors of commercial real estate, such as retail and industrial. As prices increase and supply chains run into new issues, many developers, investors, and tenants reevaluate their plans. This could slow down leasing and delay new construction as stakeholders monitor how tariff policies unfold.
Consider a scenario where the United States imposes tariffs on steel or lumber that are imported from foreign nations that are used in real estate construction. The goal of these tariffs would be to encourage the production of these materials inside the United States, reducing reliance on imports. So, developers start building steel mills in the United States instead of sourcing steel from overseas to avoid the tariffs. However, the raw materials for producing steel, such as iron ore, are still imported from countries like China, Brazil, or Australia. If tariffs are imposed on those materials, the cost of producing steel in the United States would still increase. This creates a situation where the overall construction cost rises, despite efforts to bring manufacturing companies and jobs to the United States. The end result would be that building projects may become more expensive, which would delay construction timelines and potentially reduce the affordability of housing.
Construction Costs and Supply Chains
Perhaps no CRE sector feels the brunt of tariffs more acutely than construction. Roughly 1/3 of the United States’ construction materials are imported, largely from China, Canada, and Mexico. According to CBRE, tariffs on steel, aluminum, and lumber can inflate construction costs by 3-5% overnight. For an industry still recovering from pandemic era supply chain disruptions and two years of rising interest rates, the tariff policies have brought additional uncertainty to the construction industry. The strategy of stockpiling materials, a typical response to cost surges, will likely no longer be viable. Developers are stretched thin, and with tariffs looking more like a structural change than a temporary disruption, hoarding materials likely doesn’t make financial sense. Domestic manufacturers, for now, might not be able to meet demand, leaving developers squeezed between high import costs and limited local supply.
Sector-Specific Impact
Industrial: While the reshoring of manufacturing may eventually benefit industrial real estate, that payoff is likely years away. In the near term, disrupted supply chains will likely lead to a decrease in import/export activity and less new warehouse development. Notably, third-party logistics firms, particularly from Asia, are leasing up space rapidly to adapt. For example, at a recent NAIOP event, Eric Cox, senior vice president with CBRE’s National Partners Group, said that Asian third-party logistics companies have already been leasing large warehouse space in Southern California in preparation for the higher tariffs. They now occupy 40% of the market (Borland).
Retail: Tariffs are likely to increase prices for consumer goods, cutting into household spending. With major retail categories like mobile phones, apparel, and automobiles heavily dependent on imports. March 2025 saw the lowest confidence levels since November 2022. As consumers begin to cut back on spending, retail CRE is preparing for decreased foot traffic, lower tenant sales, and reduced leasing activity. Retailers reliant on imported goods, such as clothing, electronics, and furniture, face higher costs due to tariffs. This would squeeze their profit margins, and some retailers will be forced to pass these costs to consumers, and others will close stores or downsize. A UBS report (2020) estimated that tariffs could force 12,000 United States stores to close, particularly in sectors like apparel and home goods. Shopping mall owners are already struggling with e-commerce competition and will likely face further strain as retailers cut back on physical locations (Green Street Advisors, 2021).
Multifamily: The tariffs on imported material, such as steel, aluminum, and lumber, are expected to cause construction costs to rise, thus making it significantly more expensive to build new multifamily housing. According to CBRE, construction costs are expected to increase by 3% to 5% due to the tariffs. With roughly one-third of all United States construction materials being imported (many from China, Canada, and Mexico), developers are now facing inflated project budgets at a time when borrowing costs are already high due to elevated interest rates. As a result, many developers are likely to delay or cancel planned multifamily projects, especially those with tight margins. This retreat from new development will only intensify the existing housing shortage across many parts of the United States. Meanwhile, multifamily properties that are already completed may benefit from the supply squeeze. With fewer new units coming to market, demand for existing apartments could push rental rates higher, making these assets more profitable for current investors. However, this means renters may face increased costs, worsening affordability challenges, particularly in urban areas struggling with housing insecurity. In his op-ed, Northspyre CEO William Sankey warned that “even fewer projects [will] happen due to the increased construction costs, worsening the housing supply issue in the coming years and driving up rents.”
Office: While the office sector isn’t the most directly hit by tariffs, it still stands to feel the ripple effects of a slowing economy. As economists predict lower growth and rising inflation, businesses may respond by cutting back by freezing hiring, pausing expansions, or downsizing their office footprints altogether. These kinds of belt-tightening measures tend to follow economic uncertainty, especially as companies face rising costs and shifting consumer demand. Ultimately, the office market’s outlook will depend heavily on broader economic conditions (e.g, interest rates, inflation, etc.) and how businesses adjust to a new normal.
Strategies for a Shifting Landscape
Developers seeking to mitigate the impact of tariffs are turning to innovative solutions. Curtis Spencer, CEO of IMS Worldwide, recommends that property owners and developers consider a Foreign-Trade Zone certification to help lower costs related to tariffs. A Foreign-Trade Zone is an area within the US that is considered outside of the bounds of Customs and Border Protection and therefore can reduce duties and taxes. Despite the long-term goal of reshoring manufacturing, the path forward is not guaranteed. Companies that are reliant on Chinese production could simply relocate to other countries with more favorable trade terms, avoiding tariffs without moving to the United States entirely.
All aspects considered; these tariffs mark a major change in how many parts of the economy will function. The commercial real estate world will have to deal with higher costs, supply chain issues, and global political tension. During these times of economic change, it’s important to stay flexible, stay informed, and be open to different ways of doing things. With so many policy changes and economic uncertainty, our ability to adapt will matter more than ever.
Sources:
National Association of Home Builders (NAHB) – Impact of Lumber Tariffs (2021)
American Institute of Architects (AIA) – Tariffs and Construction Costs (2020)
CBRE Research – Warehouse Demand Trends (2022)
UBS – Retail Store Closures (2020)
Real Capital Analytics (RCA) – Foreign Investment Trends (2020)
Northspyre – The Impact of Tariffs on Commercial Real Estate (2023)
Chad Massaker – The Impact of Trump Tariffs on Commercial Real Estate: A Comprehensive Analysis (2025)
Author email: gk2830@nyu.edu