Understanding the effects of tariffs on commercial real estate is crucial for anyone invested in this market. From developers and investors to landlords and tenants, tariffs can ripple through the economy, influencing property values, mortgage rates, and construction costs. Whether you’re assessing new investments, managing properties, or planning future developments, navigating these economic changes requires insight and adaptability.
We’re taking a look at how tariffs impact real estate on every level and exactly what steps you can do to minimse your risk level.
From May 14, US and China will reduce their respective tariffs for 90 days by 115% each – bringing US tariffs on China down to 30% and China’s tariffs on the US down to 10%.
Jump to:
- Impact on buying property
- Impact on mortgage rates
- Construction costs
- Fixture costs
- What investors can do
Direct impact: how tariffs affect property values
President Trump’s changing tariff strategy is causing ripples throughout the market, impacting the economy at many levels. The housing sector isn’t immune: tariffs may impact various aspects, from builders and mortgage brokers, buyers and sellers of commercial real estate and residential property.
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Direct impact: how tariffs affect property values
For various reasons, spring is often a good time to purchase real estate. It just so happens that, this year, a lot of the tariff impact as come in spring. As we slowly head towards June and summer begins to creep in, the tariff uncertainty could impact the number of property sales as buyers may instead choose to wait and see what happens in the property market before making a big decision from real estate market analysis.
The exact impact of tariffs on property buying won’t be known until spring is over and we can analyze if sales have dipped below expected levels overall.
Tariffs can increase mortgage rates
It’s also true that economic uncertainty via an uncertain or changing tariff policy can drive up inflation, causing mortgage and rent to jump higher through higher interest rates. For now the U.S Inflation Rate remains at 2.31% in April 2025, following only a negligible 0.08% decrease from March.
If you have a mortgage deal or rent agreement coming to a close, then you could be looking at a higher rate than you may have expected.
Tariffs impact construction costs
Tariffs can impact property values and rent prices directly. As tariffs act as import taxes on goods such as wood, glass, metal, and plastic; the cost of construction and renovation can increase. By what amount is hard to pin down.
Expect an uptick in the cost of raw materials with the introduction of Trump’s tariffs, particularly if the proposed measures are fully enforced.
One example we can see playing out right now is lumber. The White House has been particularly interested in lumber as it studies which imports come into the U.S. The U.S. relies on lumber imports to meet about 30% of its domestic demand, the National Association of Home Builders (NAHB) states.
According to a recent report from the Commerce Department, although lumber is currently not subject to tariffs, this status might not last. Canada supplies a significant portion of lumber to the U.S., accounting for approximately 80% of softwood lumber imports. The report suggests that by 2025, import taxes on lumber from Canada could more than double.
Tariffs could increase costs of fixtures
If you’re in the home renovation sector, you’ll likely notice the strain from tariffs too. Even though you lean on lumber less than home builders do, you’re still dealing with increased costs for items like fixtures, appliances, and plumbing materials.
Tariffs on Chinese imports could spell trouble building renovators and converters, both of which import many materials from overseas such as glass.
“A lot of the materials that we use in projects, either the finished materials or the rough materials, are directly or indirectly from China. So that’s going to affect a significant part of the market,” said Eli Moyal, founder and COO of renovation project tracking service Chapter.
Although clients are likely to encounter project price hikes ranging from 10% to 15% due to tariffs, according to Moyal, not all of these increased costs are being transferred to consumers.
“Not everything is being put to the client, to the end of the funnel. The manufacturer takes some, the distributor takes some, the builder takes some, and then the client will see some increase in cost,” Moyal said.
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What CRE investors and landlords can do about the tariffs
Understand that the challenges brought about by tariffs require creative solutions. Investors aren’t poweless, but it’s a tricky situation to navigate.
- Broaden your investment portfolio: Real estate is a common anti-inflation investment, but it’s not immune to risk. Seeking financial advice to balance your portfolio and adjust your risk level may be helpful.
- Keep yourself updated: The tariff policies are evolving overtime as negotiations play out and the administration responds. Staying informed can give you an idea how things are going, but remember responding at the first jump might not be a good idea.
- Embrace a long-term perspective: At the end of the day, having commercial real estate investments involves some risk, even ifthe tariffs may not have been an expected one when you invested. Think long term. Some risk is part of the equation, but define what’s manageable for you.
- Location, location, location: Some regions are less impacted by international trade policy. Investing in these areas, outside of ports, could carry less risk of being impacted by tariffs. However, no location or CRE property is perfect.
- Engage in tenant negotiations: Go into negotiations and discussions with tenants with that long-term perspective. Keeping a good tenant is a better investment over-time than letting them go and having an empty property. The tariffs may be impacting their business and ability to meet the costs of the lease – work with them to find a solution.
- Evaluate the performance of your properties: You can benchmark the performance of your retail properties and mall locations in comparison to competitors. This can help you make decisions about tenancy and if and when you should invest.
The best thing investors and landlords can do is take a long-term approach. Take a look at your portfolio, evaluate and risk assess, then take a deep dive into each commercial property using predictive analytics and site performance data. How much the tariffs impact you may depend on who your tenants are and where they are based.
At pass_by, we offer the highest in market accuracy with 94% correlation to ground truth, over 15 data inputs, and a full 90 days of predictive feeds. Sign up to our newsletter so you never miss a report.
Real estate tariff FAQs
Are there specific regions more affected by tariffs in the commercial real estate market?
Regions that typically benefit from international trade such as coastal markets and industrial port hubs wll be hit most directly by the tariffs as international trade is likely to slow, reducing the level of business activity in the region, which will have a domino effect across the area.
Do tariffs impact retail commercial properties?
Yes. Tariffs can ripple through various layers of the economy, shaping the dynamics of demand for commercial properties. When tariffs are imposed, they can lead to higher prices on goods. This, in turn, can suppress consumer purchasing power, leading to a contraction in retail sales. Retail spaces, dependent heavily on consumer spending, might find themselves in less demand as businesses pause or scale back on expansion plans due to increased operational costs.
How do tariffs affect foreign investment in commercial real estate?
Foreign investors continuously weigh various factors before diving into the U.S. commercial real estate market. Increased costs of construction, wider economic uncertainity, and currency fluctuations can all impact the readiness of forgein investment into the United States.
How do tariffs influence the leasing rates of commercial properties?
Higher operating costs can be passed down to tenants in the form of higher rent and lease rates for both residential and commercial properties. Tariffs may alter supply and demand within the commercial market, by reducing demand for commercial spaces in industries impacted by the tariffs (such as CRE in port locations or industrial towns).
