Trade Winds Redrawn: US Tariffs and Commercial Real Estate

Elevated tariffs may represent more than a mere adjustment in trade policy—they could be signaling a fundamental departure from the longstanding US commitment to global economic integration. For decades, the US championed open markets, maintaining an average tariff rate of just 2.2%, considerably lower than Canada’s 3.4% and the European Union’s 2.7%, according to 2023 data from the World Trade Organization.

Today, these figures appear to reflect a bygone era, as new dynamics reshape the nation’s approach to international commerce. US tariff policy has been changing rapidly, and it is not known what the scope and magnitude of the levies on each country will ultimately be. Nevertheless, it appears that a new paradigm will be in place once the dust settles.

There is some level of bipartisan agreement that onshoring of manufacturing in certain sectors represents a national security imperative—one unlikely to be reversed. Since 2017, and accelerating in the wake of the pandemic, the US has sought to reduce its reliance on China and other countries for critical supplies, including semiconductor chips, active pharmaceutical ingredients, generic medicines, naval vessels, drones, and personal protective equipment.

Similarly, the US has been actively working to lessen its reliance on imports for critical materials such as aluminum and steel. These efforts are driven by concerns over national security, supply chain resilience, economic independence, and geopolitical tension. The strategies involve a combination of domestic investment, trade policy shifts, and international partnerships.

The full extent of the shift away from China has yet to be determined, and there is constant news of adjustments to proposed tariff levels. This ongoing negotiation—often conducted openly, almost theatrically, in the public sphere—has fueled uncertainty. Investors observe every move, every opening bid, every counter, and react with anxiety or at some point resignation, even exhaustion. For manufacturers, this creates a dilemma of trust and timing. They are asked to commit—to invest, to build, to root their operations—without knowing whether the rules of trade will change tomorrow. Will tariffs be imposed? At what levels? And for how long? These unknowns sow hesitation where there should be momentum.

Despite this uncertainty, a handful of large firms have taken meaningful steps forward. Initial onshoring activity includes Hyundai Steel announcing that it is opening a plant in Louisiana^[i] and Honda announcing that Civics will be produced in Indiana.^[ii] TSMC, the world’s largest contract chip manufacturer, pledged to invest a total of $165 billion in advanced semiconductor manufacturing in the US^[iii] More recent announcements include Eli Lilly and Company, a global leader in pharmaceutical products, stating that they are moving forward with plans for a $5 billion state-of-the-art manufacturing facility in the Richmond, VA area.^[iv] President Trump announced that Japanese auto maker Toyota is going to invest $10 billion in auto plants in the US, coming as Tokyo released some details about the over half a trillion dollars it has pledged to invest in America as part of a trade deal.^[v]

Since April 2, 2025, when tariffs were announced on every nation in the world with elevated levies on Chinese imports, the President has been negotiating with many nations and has reached agreements or trade frameworks with the European Union, United Kingdom, Japan, Indonesia, Vietnam, and other countries. These agreements have resulted in less uncertainty, however, with the administration’s tariffs now before the supreme court—the outcome is not firm.

While the retail and industrial sectors are more directly impacted by tariffs, all CRE is influenced by broader macroeconomic trends that tariffs influence, including inflation, interest rates, and capital flows. Certain sectors and regions may start showing signs of resilience or vulnerability depending on their exposure to global trade and sensitivity to construction costs.

MACROECONOMICS

The implementation of recent tariffs carries the risk of generating widespread distortions across the US macroeconomic landscape. When policy actions disrupt the natural dynamics of free-market exchange, the consequences often extend beyond their initial scope, potentially elevating inflation expectations, disrupting bond market stability, and distorting established trade flows.

In consequence, individuals—whose decentralized knowledge is far superior to any central authority’s—now anticipate markedly higher prices. The University of Michigan’s survey reveals that the public expects a 4.7% rise in prices over the coming year. Over a five-year horizon, expectations have climbed to 3.6%.

The effects of recent trade interventions have quickly made themselves felt in the broader economy. After real GDP contracted at an annualized rate of -0.6% in the first quarter—the first such decline since early 2022—it rebounded an impressive 3.8% in the second. But behind the initial contraction lies a more telling story of how government-imposed distortions can ripple through a complex market system.

A key contributor to the initial decline was trade. The sharp increase in imports was not a reflection of genuine demand growth, but rather the result of businesses and consumers rushing to bring in goods ahead of expected tariff hikes. These actions, entirely rational from the perspective of individual firms, effectively pulled future demand into the present. Imports surged 38% in Q1, then dropped -29.3% in Q2, disrupting the natural timing and flow of trade. Because imports are subtracted from GDP calculations, this surge—outpacing any offsetting rise in exports—led to a widened trade deficit. This imbalance became the largest single drag on economic growth, overshadowing improvements in other sectors.

We also saw this anticipatory behavior in consumer spending, particularly in retail and the auto sector. Households, expecting higher prices due to tariffs, increased their purchases to avoid paying more in the future. This kind of forward-looking action by millions of individuals underscores a truth often ignored in economic planning: the market is not a machine to be engineered, but a process of constant adaptation by people responding to prices, expectations, and uncertainty.

COMMERCIAL REAL ESTATE

The CRE market is confronting a complex set of macroeconomic dynamics in the wake of new tariffs. Though tariffs do not directly target real estate, they influence the sector in ways such as higher construction and labor costs, potential changes in interest rates, and shifts in tenant demand.

A tariff-induced recession would weigh on property fundamentals, yet real estate’s contractual cash flows, inflation resistance, and domestic orientation offer some protective characteristics. Investors and operators must remain vigilant as these broad economic forces shape investment outcomes. Uncertainty around tariff policy can cause investors to pause, particularly foreign investors in US real estate.

The construction industry faces significant headwinds due to rising material costs, constrained labor supply, and general economic uncertainty. Since the pandemic, construction costs have consistently outpaced overall inflation. Commercial construction inputs have grown 41.5% and multifamily construction 39.1% while CPI grew 25.2% during that time period.

Tariffs on key materials such as steel, aluminum, and lumber raise costs for all property types. With these new tariffs, expenses related to construction, renovation, repairs, maintenance, and capital projects are likely to rise even higher.

INDUSTRIAL

Coastal logistics assets, long favored for their proximity to ports and international shipping lanes, may see tempered demand. As tariffs and trade uncertainty ripple through supply chains, dependence on global flows becomes a vulnerability. In contrast, inland warehouse and distribution centers—particularly those near domestic manufacturing hubs and along the US–Mexico border—may emerge as more durable, even strategic, components of a new industrial map. These markets will benefit, even if the new facilities include a substantially higher share of robots and automation than in the past.

A resurgence in US manufacturing may prove transformational for select local economies, catalyzing demand not only for labor but for the physical infrastructure of production: logistics parks, cross-dock facilities, last-mile hubs. In the Midwest, cities like Columbus and Chicago stand to benefit from reshoring, especially in sectors like industrial logistics. These cities, deeply rooted in distribution networks, are now positioned as vital nodes of a possible partially re-nationalized supply chain.

The Southeast continues to rise, driven by its demographic momentum and the maturity of its industrial corridors. Markets like Nashville and the I-85 corridor have become magnets for advanced manufacturing, supported by infrastructure, workforce availability, and competitive costs. In the Southwest, Texas and Arizona stand out—not just for proximity to Mexico and access to nearshoring benefits, but also for their roles in the expansion of domestic chipmaking and automotive production. Austin, Dallas, and Phoenix may become anchor points in this type of production resurgence.

Traditional high-tech manufacturing clusters in Silicon Valley and Los Angeles continue to be important while growing hubs including Austin, Phoenix, Columbus, and Raleigh may gain more relevance, particularly as supply chain security and domestic tech independence take center stage. At the same time, the risk of trade disruption with North American partners—particularly Canada and Mexico—remains a negative factor.

States in the Midwest and Southwest are especially exposed, while at the same time may benefit from their importance as manufacturing hubs and logistics engines. Looking ahead, strategic opportunities may rise in automotive and motor parts production—particularly in Texas, Georgia, Michigan, Ohio, Kentucky, Tennessee, Missouri, South Carolina, and Alabama.

The map in Exhibit 4 highlights the 77 markets with the largest current employment across electrical, auto, chemical, pharmaceutical, medical equipment, and high-tech manufacturing sectors, illustrating where jobs in these industries are expected to increase or decline over the next five years. Markets shown in green represent areas that may benefit from reshoring activity within these sectors.

Among these markets, chemical manufacturing employment is projected to grow most significantly in Washington, DC (16.3%), Salt Lake City (14%), and Miami (13.8%). Growth in computer and electronic product manufacturing is expected to be led by Atlanta (8.3%), Denver (7.4%), and Seattle (5.5%). Pittsburgh and Tampa are each projected to see 9.4% gains in electrical equipment, appliance, and component manufacturing, followed closely by Madison, WI (8.8%). Tampa is also positioned for growth in medical equipment and supplies manufacturing (5.9%). Meanwhile, pharmaceutical and medicine manufacturing employment is projected to expand significantly in Greenville, NC (14.3%), Atlanta (12.5%), and Ogden–Clearfield, UT (8.0%).

In the motor vehicle manufacturing sector, the strongest gains are expected in San Antonio (14.3%), Nashville (5.6%), alongside smaller markets such as Lafayette, IN, Tuscaloosa, AL, Elkhart, IN and Lexington, KY.

Digging deeper, the automation risk will likely be most pronounced in manufacturing industries across California, Illinois, and Michigan. Real GDP in sectors expected to benefit from onshoring is projected to grow by a combined 19% over the next five years in these states, while employment is forecasted to decline by 1%.

MULTIFAMILY

The multifamily sector presents a dual narrative: while broader tariff-induced recessionary pressures may weaken rents and occupancy, a slowdown in construction activity due to high input costs supports asset values in growth markets such as the Sunbelt and Intermountain West. Coastal multifamily properties also stand to benefit from reduced construction activity and consistent demand. Southwest cities like Austin, Dallas, and Phoenix are positioned to gain in the multifamily sector.

The construction industry faces significant headwinds due to rising material costs, constrained labor supply, and general economic uncertainty. Tariffs are increasing the price of key inputs such as steel, aluminum, and glass, while tighter immigration laws limit labor availability. As noted, construction costs have increased approximately 41.5% since the pandemic. At the same time, elevated interest rates add further stress to underwriting new developments. As a result, new project pipelines are thinning, becoming a tailwind to the relative value of existing stabilized assets, especially in supply-constrained markets.

RETAIL

Tariffs can have a significant and multi-layered impact on the retail sector, as it sits at the front line of global supply chains and consumer behavior. Here’s a breakdown of how tariffs affect retail real estate, operations, and consumer dynamics: If tariffs lead to inflation or economic uncertainty, consumer confidence may decline. Discretionary spending slows first, hitting fashion, dining, and entertainment tenants hardest. Budget-focused tenants may see a short-term bump in demand, but long-term cost inflation erodes that advantage.

Local goods, services, healthcare, and experiential retail may become more dominant. Some categories—like fast fashion, consumer electronics, and discount furniture—may shrink due to rising import costs. Many retail goods—apparel, electronics, furniture, toys, appliances—rely heavily on imports, especially from China and Southeast Asia. Tariffs raise wholesale costs, which will likely be passed on to consumers, leading to higher prices, weaker demand, and thinner profit margins. Value-oriented retailers (e.g., Walmart, Dollar General) may struggle to absorb costs, while luxury brands may pass them along more easily. Tariffs exacerbate already-tight margins for brick-and-mortar retailers, especially as they compete with e-commerce.

OFFICE

The office market, in this moment, is undergoing a decisive recalibration because of remote work.^[vi] Not all markets are equal in this evolution. Metros like New York and Dallas continue to show resilience—buoyed by talent density, innovation capital, and institutional depth. Washington, D.C., by contrast, offers substantially less optimism as its existing problems are exacerbated by government cutbacks.

Office real estate is fundamentally linked to the dynamics of the labor market—encompassing where and how work is conducted, as well as corporate confidence in future growth. The imposition of tariffs adds complexity to this environment. Should tariffs disrupt global supply chains or create sustained uncertainty, businesses may adopt a more cautious stance—deferring hiring decisions, postponing office expansion plans, and reassessing capital investments. These shifts could potentially have a cascading effect on leasing activity, ultimately dampening overall demand.

Multinational firms, especially those in manufacturing, logistics, and technology, are particularly exposed. When strategy must be rewritten in response to shifting trade winds, office space becomes not just a cost center but a variable in a larger equation. Cities with strong ties to global trade—Houston, Seattle, San Diego—may feel this strain more acutely, as their office fundamentals soften under the weight of hesitation.

Secondary markets with more domestically oriented economies—Nashville, Raleigh, Columbus—may emerge as relative winners, because of demographic growth. In a fragmented environment, they offer what the market increasingly values: stability, affordability, and proximity to a workforce.

HOSPITALITY

In an environment of economic contraction, the hotel sector feels the chill early. Travel, especially discretionary and business-related, is among the first expenditures to be paused. As demand softens and price sensitivity grows, pressure mounts across the performance spectrum, from midscale to luxury.

Yet the burden is not limited to the top line. It is also deeply structural. Hotels are built and refreshed with goods that cross oceans—textiles, furniture, electronics, and fixtures. These imports form the backbone of capex cycles, particularly Furniture, Fixtures, and Equipment (FF&E), and when tariffs intervene, they do so with consequence. A 10–30% increase in procurement costs can shift a project’s economics entirely, forcing brands to make trade-offs between experience and affordability, quality and feasibility.

The challenges extend beyond design and development. If tariffs fracture global trade relationships or provoke retaliation, the effects ripple through the business travel and international tourism subsectors. In cities like New York, Chicago, and Houston, where corporate clients and global visitors form a dependable foundation of occupancy, the ground becomes less stable. A chill in cross-border commerce translates quickly to emptier rooms and tighter margins.

Meanwhile, rising costs sneak into operations. Imported linens, cleaning supplies, minibar items, and energy systems become more expensive, especially for full-service and luxury brands that rely on elevated standards. In this way, tariffs do not hit the lodging sector in a single blow—they erode it quietly, through procurement, through policy, and through the invisible recalculations of travelers deciding whether to go or stay.

PROFOUND TRANSFORMATION

The shifting role of tariffs in today’s geopolitical and economic environment marks a profound transformation in the US approach to global commerce. No longer just levers of trade, tariffs have become strategic tools used to recalibrate national priorities, signal geopolitical allegiances, and redefine economic resilience. As the US moves away from decades of advocacy for open markets, this new era is characterized by onshoring, supply chain realignment, and heightened uncertainty that reverberates far beyond factory floors.

This emerging paradigm introduces volatility that challenges business planning, investment strategies, and long-term commitments. Manufacturers are caught in limbo, uncertain of future policy, while consumers and investors adjust their behavior in anticipation of inflation and market distortions.

In commercial real estate, the ramifications are equally complex. Tariffs indirectly reshape the sector by inflating construction costs, altering tenant demand, and heightening capital risk. While some regions and asset classes—like inland logistics hubs and multifamily properties in resilient metros—stand to benefit from any shift toward domestic production, others face a more complicated path. Retail, office, and hospitality sectors, particularly those with high exposure to international trade or consumer price sensitivity, must brace for both structural and cyclical headwinds. Ultimately, the future of US trade policy remains uncertain, but its impact is already here. As the nation recalibrates its place in a fractured and multipolar global economy, strategic clarity and operational flexibility will become paramount. Stakeholders across industries—policy makers, investors, developers, and consumers—must adapt to a world where economic integration is no longer a given, but a choice shaped by political will, national interest, and evolving global power dynamics.

ISSUE #20:

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CONTENTS

Note from the Editor: Issue #20

Benjamin van Loon | AFIRE

AFIRE Investor Survey: The Case for US Real Estate in 2026

Benjamin van Loon | AFIRE

The Data Center Pipeline: Is it a Boom, or a Bubble?

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Autonomous Intelligence and the Global CIO: Formalizing Conviction in a Fragmented Market

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A Home Genome Project: How a City Learning Cohort Can Create AI Systems for Optimizing Housing Supply

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How C-PACE (and Stretch PACE) are Rewiring Global Real Estate Finance for the Energy Transition

Jonathan Seabolt | Clearwater PACE

Solar Wave: Community Solar is Set to Transform Lease Income

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Trade Winds Redrawn: US Tariffs and Commercial Real Estate

Stewart Rubin and Marshall Swett | New York Life Real Estate Investors

The Complexity Premium: Leveraging the Alpha Opportunity in Regulated Gateway Cities

Donal Warde | Consultant + Richard Cadena | Bank Hapoalim (BHI) + Wenpeng Ding | Zicklin School of Business

NYC Office Recovery: Repricing Physical Infrastructure in the Age of AI

Scott Crowe | RXR

Beyond Motivation: Why Invest in US Affordable Housing? And Why Now?

Deborah La Franchi | SDS Capital Group

Build-to-Rent: Redefining Housing for Renters and Investors

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Inflation Fighters: The Case for Mission-Critical NNN

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Private Apartment Equity or Private Debt: Comparing Investment Performance of the Two Quadrants

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Meet Them Where They Are: National Demand Landscape Survey

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REIT Puts and Calls: Public Market Signals for Private Real Estate Investors

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Modernizing Management: How Structural Shifts in Real Estate are Rebalancing the GP and LP Relationship

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Clarifying Vision: Exploring the Dynamics of Slowing Capital Flows

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