How Tariffs May Impact Commercial Real Estate Investments

As U.S. trade policy continues to shift, particularly with the introduction of new tariffs, commercial real estate (CRE) investors are beginning to assess the ripple effects. These changes aren’t just influencing importers and manufacturers, they’re also reshaping the way investors approach acquisitions, underwriting, and long-term value strategies.
Recent reports show a clear trend: tariffs are already affecting transaction volume, development costs, and asset valuations in both the retail and industrial sectors. Here’s what you need to know.

Retail & Industrial Activity Is Slowing Down

According to CFO Dive, uncertainty caused by tariff proposals is leading to transaction slowdowns in both retail and industrial real estate. CBRE’s Whitley Collins noted that tenants are pausing leasing decisions and waiting to see how new tariffs will impact consumer demand and operational costs.

• Retail: Q1 2025 saw the first negative net absorption of retail space since the pandemic, as rising costs and geopolitical uncertainty pushed tenants to delay expansion.

• Industrial: Vacancy rates in industrial properties rose to 6.3%, the highest level since 2014, as some companies rethought distribution and fulfillment strategies amid higher import costs.

Tariffs Are Increasing Construction Costs

A report from KLW Law highlights the direct impact tariffs are having on development economics, especially in the industrial sector. Proposed tariffs of 60% to 100% on Chinese goods, along with expanded duties on goods from Mexico and other regions, are inflating the cost of key construction materials like steel and aluminum.

These increases are squeezing developer margins and forcing re-evaluation of speculative development projects. With construction costs rising and cap rates holding steady or compressing, the underwriting math for new builds is becoming more challenging.

Supply Constraints May Benefit Existing Assets

While tariffs create headwinds for new development, they may also present opportunities for existing property owners. A recent CREXi LinkedIn article notes that warehouse construction costs are up as much as 10%, driven in part by increased steel prices. As a result, fewer new industrial properties are breaking ground, reducing supply and potentially pushing up demand for existing, well-located assets.

Additionally, the article points out that tariffs may drive companies to rethink their supply chains, moving away from coastal entry points and toward inland or secondary logistics hubs, potentially unlocking new value in emerging industrial markets.

Financing May Tighten as Risk Increases

Tariffs introduce input cost uncertainty, which not only affects developers but also lenders. As noted by multiple industry sources, when construction budgets become unpredictable, lenders often pull back or price in higher risk, raising borrowing costs or delaying financing altogether.

This financing gap can lead to missed development timelines, renegotiated contracts, or even shelved projects, further limiting new supply and enhancing the appeal of stabilized, income-generating properties.

What This Means for Investors

Here are some key takeaways for CRE investors navigating this environment:

• Reassess active deals and timelines: Tariff volatility may delay entitlements, permits, or financing.

• Rethink ground-up development: Rising input costs and softening demand in some markets may compress margins.

• Prioritize existing assets: With supply chain delays and reduced new inventory, stabilized assets in core or emerging markets may outperform.

• Consider secondary markets: Tariff-driven logistics shifts may create new demand nodes away from traditional coastal hubs.

Let’s Talk Strategy

Whether you’re looking to acquire, reposition, or exit a commercial asset, our Investment Sales team is here to help you navigate this evolving environment. With deep market insight and experience advising through economic cycles, we help our clients adapt quickly and make smart, resilient investments.

Schedule a consultation with our team to evaluate how tariff changes may impact your portfolio and where the best opportunities lie.