Everyone’s talking about tariffs, but what do they really mean for real estate owners and investors?

An uncertain global trade environment is adding to the already-volatile market for real estate owners and investors. Like all volatility, everyone is impacted by it, but different sectors and investor types are facing different challenges and opportunities.
The good news is, over the last two years, real estate owners and operators have managed to maintain value and drive operational performance despite a challenging macroeconomic environment. However, now, the implementation of new tariffs, the renegotiation of longstanding trade deals, and the threat of a global trade war is creating newfound anxiety among investors who have already been in survival mode. The global tariffs are viewed as complicated, confusing, and ever evolving. Policies have started and stopped; the rate has changed; exemptions have been carved, and companies have been caught in the crossfire.
While the tariff rates are expected to continue to change, and new trade deals are being announced daily, a handful of sectors important to real estate and construction have enjoyed special exemptions to date. Copper, lumber, oil, and energy products are among the goods exempt. The full effects of the tariffs are yet to be realized, but real estate dealmaking should be impacted in a few ways.
Where do we stand?
Commercial real estate owners and investors will likely see mixed results from the effect of tariffs. On one hand, new construction could be affected by tariffs on steel and aluminum, as well as increased labor costs due to more restrictive immigration policies. In this case, new projects would be at risk of running over budget. On the other hand, if the price of materials and labor rise, existing stock could benefit through appreciation. In both cases, however, a main question will be how much tariffs affect the overall economy. If tariffs lead to a broad economic downturn, many parts of the economy (including CRE) could see decreased demand.
While both the easing of tensions with China and the agreement with the U.K. are positive steps, the overall state of global trade has deteriorated compared to earlier in the year. Significant tariffs on Chinese goods remain in place, along with widespread baseline tariffs on most other countries and additional duties targeting specific sectors like steel, aluminum, and automobiles. Although recent changes have slightly reduced the overall tariff burden, it still remains considerably higher than what was typical in the previous year.
Slowing growth and lower wages could reduce consumer spending and suppress leasing activity and rent growth, while inflation is likely to increase operational costs. Altogether, real estate owners and investors are anticipating the impact of tariffs to include lower NOI growth and reduced property valuations, all else equal.
The deterioration of demand fundamentals would be an abrupt change from the last two to three years. Commercial real estate activity slowed as a result of the higher cost of capital, but owners continued to enjoy strong demand-side fundamentals, allowing many to hold onto properties through the market volatility and still realize value. As trade agreements transition, recessionary pressure is likely to hit Main Street, and owners would then see reduced demand.
Sector specifics: Industrial, retail, and new construction bear the brunt
Each commercial real estate sector is likely to experience the tariff effect differently. Industrial properties, retail properties, and new construction will likely bear the brunt of the increased tariffs. Industrial and retail properties have a heightened exposure to consumer spending, which is expected to fall as prices for consumer goods rise to offset the tariffs. Lower consumer spending typically translates to reduced demand for the real estate that supports it, whether a physical storefront, an ecommerce warehouse, or a last-mile facility. CBRE has already seen some delayed industrial leasing because of the tariffs.
Likewise, the construction industry will see the direct impact from the levies on construction goods, like steel and copper. Currently, about 7% of materials — representing $14 billion of goods — used in new residential construction come from a foreign nation. Construction costs have already increased significantly since the pandemic, and tariffs will narrow already thin margins for both residential and commercial projects.
This isn’t to say that other sectors won’t see an impact. Multifamily and office assets could see reduced demand, particularly in the event of a recession, and hotel demand would be impacted by reduced travel.
Interest rate uncertainty
Interest rates have been the driver of uncertainty and slowed commercial real estate investment activity for the last several years. At the end of 2024, three consecutive interest rate cuts renewed optimism that rates would fall significantly in 2025 and restore investor activity. However, that enthusiasm quickly waned, as the Fed has opted to leave current interest rates in place. There remains deep uncertainty about where rates could move. Some believe that weakening economic fundamentals will cause the Fed to push rates down to stimulate growth, while climbing inflation makes the case that interest rates could remain elevated to combat the negative effects.
The Fed directly noted the impact of tariff-related ambiguity at its meeting in May, where Federal Reserve Chair Jerome Powell said, “It's not at all clear what we should do. There's so much uncertainty.” It is likely that interest rate uncertainty will remain a headwind for the commercial real estate market through the end of the year, at least.
Establishing a proactive response
Real estate owners and investors are rightfully anxious about the tariffs and the related economic uncertainty. While the uncertainty will have an impact on real estate markets, proactive owners will be able to weather the storm by evaluating options and being prepared for multiple potential outcomes.
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This article is for general information purposes only and does not consider the specific investment objectives, financial situation, and particular needs of any individual person or entity.