In recent years, global trade tensions and the strategic use of tariffs have added a layer of complexity to the U.S. economic landscape. While most discussions around tariffs focus on consumer goods, manufacturing, or agriculture, there’s another arena quietly affected by these policies—commercial real estate (CRE). Tariffs don’t just tweak prices at the checkout line; they ripple through construction costs, supply chains, foreign investment, and investor confidence. As the U.S. continues to navigate a volatile global trade environment, it’s worth asking: how do tariffs shape the present and future of commercial real estate?
The Construction Cost Squeeze
Tariffs on imported materials—especially steel, aluminum, and lumber—have significantly raised construction costs. Since CRE projects are capital-intensive and often financed years in advance, a sudden surge in material prices can derail budgets and delay developments.
For instance, when the Trump administration imposed tariffs on steel and aluminum imports in 2018, CRE developers saw immediate price increases. This not only pushed up project costs but also created uncertainty in budgeting for new developments. Investors, wary of unpredictable cost structures, often pivoted away from new builds toward stabilized assets, cooling enthusiasm for ground-up construction.
Foreign Investment Retreat
Commercial real estate has traditionally been a magnet for international capital. However, tariffs can act as a deterrent to foreign investors by signaling geopolitical friction and economic nationalism. Countries affected by U.S. tariffs may respond with their own retaliatory measures, further chilling cross-border investment flows.
When trade relations sour, foreign investors tend to perceive higher risk and may redirect capital to markets with more predictable trade environments. This has been particularly noticeable in Chinese investment in U.S. CRE, which dropped significantly following the escalation of U.S.-China trade tensions. The result? A thinner pool of buyers for large trophy assets and, in some cases, stagnation in pricing.
Investor Sentiment and Uncertainty
Real estate thrives on stability. Tariffs, by their nature, introduce a degree of policy unpredictability. Investors rely on long-term projections for yield and valuation. When those projections are blurred by shifting tariff policies, sentiment often turns cautious.
Even the threat of new tariffs can be enough to delay investment decisions. In uncertain times, institutional investors often adopt a “wait and see” approach, leading to a short-term slowdown in transaction volume and financing activity. Risk-adjusted return expectations may also shift upward, which can further stall deals.
Location, Location, Legislation
Tariffs don’t impact all CRE markets equally. Industrial real estate near ports or borders (e.g., Los Angeles, Houston, or Detroit) may feel the impact more acutely due to their dependence on international trade and logistics. Conversely, office and multifamily assets in more insulated urban centers may be somewhat buffered.
However, localized construction markets can also suffer if tariffs create regional supply chain disruptions, making materials harder or more expensive to source even domestically.
Looking Ahead: Navigating the New Normal
While it’s unlikely that tariffs will ever disappear from the policymaker’s toolbox, CRE investors can take strategic steps to mitigate the risk they pose:
The CRE market is resilient, but not immune. Tariffs may seem like distant levers pulled in Washington or Beijing, but their effects are tangible on the ground—in construction bids, foreign capital flows, and boardroom decisions. For commercial real estate investors, understanding these dynamics is no longer optional. It's essential.
Justin Langlois, CCIM is a Commercial Real Estate Advisor with Stirling Investment Advisors servicing Baton Rouge, Louisiana and surrounding markets. Please reach out to Justin to discuss your real estate investment strategies.