We were expecting the administration to possibly levy more tariffs against China and were caught off guard when tariffs against the E.U., Canada and Mexico were announced. How might this impact the U.S. economy and how might that trickle down to the commercial real estate market?
I believe everyone was surprised and caught off guard with the administration tariffs against E.U., Canada and Mexico. Commercial RE will definitely see an impact; however, to what extent is yet unknown. Therefore, do not be surprised if you see a bit of a slowdown in RE cycle until these new regulations have come into law.
Like any other economic factor, tariffs will impact the real estate industry. How hard and when are difficult to quantify. Tariffs on building materials will increase the cost of construction. After tariffs are announced, the stock market dips, but seems to rebound quickly. No one knows the real goals of the president. Recently announced tariffs have caused discord in the Republican ranks. We keep looking for prices to decline and sectors such as retail to weaken. There has been dislocation in retail, but at the present time there seems to be so much capital to go around that we will have to be attuned to daily developments. This is the longest real estate growth period ever. Since it is a cyclical industry, be cautious but don't stop investing. Buy prudently and work with seasoned people.
The most logical immediate impact would be the resulting increase in cost of materials needed in construction, such as steel and copper. Rising construction costs have been an issue as it is, so a further spike could significantly affect delivery costs of new projects and mute new development. A reduction in development, along with general inflation that tariffs would bring to consumers and lowering new supply, could result in increasing rents if the demand remains in office, multi-family and other assets by tightening supply. But if the result is inflation followed by a correction/recession, then rents and values should not rise. All are very uncertain, as is whether there will be a long-term trade/tariff dislocation. Certainly, it's all something to watch.
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