Tariff announcements from the U.S. government seem to change on a daily basis. And amidst the tariff declarations and reversals are the inevitable questions about the commercial real estate impact.
“We can already predict what the overall outcomes are going to be: higher prices, higher costs to operate, less demand for products and likely fewer customers for businesses across all industries,” commented PearlX’s Vice President of Delivery, Simon Wooley.
This, in turn, is leading to hesitation and even pullbacks. “The most common reaction by commercial real estate teams that we work with can be boiled down to ‘hold, wait and see,’ as there has been a lack of clear or concise action by the federal government,” said David McCullough, principal landscape architect with McCullough Landscape Architecture.
But pearl-clutching and hand-wringing aren’t called for here. McCullough, Wooley and other CRE experts told Connect CRE that developers, investors and owner-operators can take steps to help mitigate the tariff whiplash impact.
Economic Uncertainty is a Given: Then There’s Real Estate
Economic volatility isn’t a stranger. Since the dawn of the 21st century, there’s been the tech bubble collapse, the Great Financial Crisis, jobless recovery and pandemic recession. And yes, it’s all impacted commercial real estate.
JLL President of Industrial Craig Meyer added that uncertainty is uncertainty, no matter what causes it. “The current volatility is unique in that it’s directly tied to trade,” he said. “This results in immediate impacts on logistics and the industrial sectors, rather than a delayed knock-on effect.”
The good news is that the CRE industry is learning from crises. “During these past times, players in the CRE industry focused on maintaining supply chain resilience, enhancing warehouse efficiency and meeting evolving consumer needs,” said Faropoint’s Head of Corporate Investments Jordan Nathan. “By adopting these strategies and learning from past experience, CRE investors, builders and owner-operators can better navigate the current climate.”
Wooley agreed, adding that past crises have taught valuable lessons. “They’ve taught us to be prepared and to focus on improving internal business processes and other matters under control, so that we can emerge as a more efficient and productive organization when things become difficult,” he said.
Actions to Take
The experts recommended the following initiatives to put into place.
Look for—and act on—opportunities
Meyer suggested not dawdling when it comes to acting on investment or development prospects and “closing any active deals diligently to mitigate future risks.”
On the development side, McCullough said that his company is continuing with project paperwork processes (like entitlements), which can be slow in California and other states. Additionally, “we’ve been able to leverage short-term tactics such as keeping ongoing and open dialogues with clients about tariffs and market uncertainty, educating ourselves on the shifting tariffs landscape in the U.S., and evaluating alternative materials when necessary to maintain project viability,” he said.
Analyze everything
Faropoint’s Nathan recommended incorporating sector-level and tenant-specific analyses into acquisition and leasing strategies to help assess tariff-related risks. To that end, Faropoint developed a language-learning model to “quickly assess not just credit risk, but tariff risk for the sector and tenant,” she observed.
CRE developers and owner-operators might also consider qualifying properties for free-trade zones or bonded warehouse status. Meyer explained that these options permit properties to enter the U.S. without immediate tariff payments. Additionally, they “could provide a competitive advantage in attracting tenants or buyers,” he noted.
Follow the “D”
The experts emphatically stated that diversification is essential in the current environment. Nathon said that location diversification can move warehouse and logistics properties closer to large populations to help minimize the impacts of supply chain disruption.
Furthermore, portfolio diversity spreads risk across asset types and geographies. “This approach can help buffer against sector-specific or regional economic challenges,” Mayer pointed out.
Speaking of asset types, “prioritizing tenant properties that have strong credit profiles and long-term stability can also be crucial for success in a chaotic economic environment,” Wooley commented. “We are also seeing a lot of companies expanding their geographic diversification by hiring more in lower-cost regions and investing in software automation to increase employee efficiency and lower operating costs.”
Boost domestic buys
Making pre-purchases from and negotiating directly with onshore companies can help developers snag supplies. “We work with a lot of U.S.-based startups and have been accelerating our domestic purchases in equipment from onshore suppliers,” Wooley said. Direct negotiation with the manufacturers on sales and purchase agreements can also help with better pricing, he added.
Don’t Just Sit There—Prepare!
The experts agreed that embracing the pause might not be the best strategy, especially as things change quickly with commercial real estate.
McCullough acknowledged that acting can be difficult these days. However, “I would encourage CRE decision-makers to maintain a long-term perspective,” he advised. “Real estate is fundamentally a long-term investment that tends to weather short-term economic volatility better than other investments.”
Meanwhile, Wooley cautioned against knee-jerk and panicked reactions when considering pricing. Instead, now is the time to evaluate issues that save money without sacrificing quality, like alternative construction and design techniques.
Finally, the current situation won’t last forever. “The silver lining is that as clarity emerges, decision-making should swiftly resume,” Meyer explained. “Be sure to navigate through the noise and put yourself in the position to act quickly as opportunities arise.”
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