The main theme of the just-released World Economic Forum’s Chief Economists Outlook could be summed up in two words: Trade policy. Specifically, “unprecedented increases in bilateral tariffs between the U.S. and other countries” have, in turn, triggered “spiraling economic uncertainty,” according to the report’s executive summary.
Also indicated? Amid discussions about artificial intelligence and real estate, WEF’s survey of economists demonstrated that overall growth prospects are weakening. Meanwhile, U.S. economists—especially those who understand commercial real estate—told Connect CRE that more than trade and tariffs are at work with the current situation.
So, Is the Sky Falling?
None of the experts disputed the economic uncertainties discussed in the report. “Constantly shifting trade policies are creating economic uncertainty across the globe, and the U.S. is among the key drivers of the chaos,” commented Greg Willett, LeaseLock’s Chief Economist.
What did surprise the experts, however, was the survey and outlook’s doom-and-gloom stance. Ray Perryman, president and CEO of The Perryman Group, allowed that there was room for negativity. However, “the fact that the survey took place from April 3-17—in the heart of the tariff turmoil—didn’t help matters,” he observed.
Chandan Economics’ Vice President Jonathan O’Kane agreed, noting that “the sheer consensus around uncertainty stood out. I agree that trade policy, artificial intelligence and inflation are acting as structural variables reshaping the global economy, rather than short-term headwinds.”
He went on to say that Inflation remains stubborn in certain parts of the world. Meanwhile, tariffs and export controls that support trade policy are “beginning to function less as economic policy and more as industrial policy, creating new rules of the game for global commerce,” he noted.
Regarding trade policy, Ryan Severino suggested that the U.S. would probably be fine. “Do I think trade policy will slow U.S. economic growth? Sure. Do I think other developed economies like the UK, Eurozone and Japan will grow faster than the U.S.? No,” said Severino, BGO’s Chief Economist and Head of Research. Even with potentially sluggish growth and the specter of higher inflation, “I still see the U.S. growing faster than a lot of other economies,” he said.
But It’s Not Just the U.S.
Speaking of which, America isn’t the only fly in the global economic ointment. The experts cautioned that other factors are driving the acceleration of geoeconomic fragmentation, as suggested by the WEF survey.
For one thing, citizens in many countries have been questioning the benefits of globalization while embracing a more nationalistic viewpoint. Severino noted that there has been a definite pushback against globalization as nationalism and populism gain strength in other parts of the world.
Perryman also suggested that the current scenario has its roots in the pandemic and supply chain disruptions in the aftermath. “Since that time, a number of countries have seen growing dissatisfaction with a variety of policies ranging from immigration to climate initiatives,” Perryman said. As a result, nations aren’t likely to be on the same page with one another, meaning “we may well see less integration as priorities and, therefore, policies diverge,” he predicted.
Other international issues are at play. Said O’Kane: “While proposed tariffs and political uncertainty in the U.S. are certainly adding fuel to the fire, the broader outlook is shaped by overlapping shocks: China’s uneven recovery, Europe’s ongoing energy rebalancing, and persistent disruptions in key trade corridors like the Red Sea.”
Speaking of which, continuous conflicts in the Middle East and the ongoing Russia-Ukraine war continue to exert their influence. According to Perryman, such conflicts increase economic uncertainty while disrupting supply chains.
The icing topping the global nationalism, tensions, and conflicts cake is America’s back-and-forth tariff policies. “With everything else that’s going on, the U.S. tariff policy, which is essentially an unforced error, hit particularly hard,” Perryman pointed out. Added O’Kane: “The U.S. may be one of the largest logs on the fire, but it’s still just one part of a much more complex picture. The result is a fragmented global economy where regional risks have global ripple effects.”
The CRE Impact
The WEF survey didn’t touch on commercial real estate. The CRE experts did. O’Kane’s concerns were that uncertainty, fragmentation and recalibration are supporting a risk-sensitive real estate environment.
Globally, this might mean fewer cross-border investments and more localized capital flows. Meanwhile, in the United States, “higher construction costs from tariffs and financing headwinds will continue to constrain new supply, especially in housing,” O’Kane said.
On the other hand, U.S. commercial real estate could likely come out of the current situation in decent shape. “While there’s some hesitancy for some foreign capital sources to deploy funds in the U.S. right now, it’s hard to argue against the long-term performance track record of North American real estate,” Willett said. “Today’s political winds may not shift the U.S. role in the global economy to the degree that some anticipate for the moment.”
Severino agreed, adding that CRE is a long-term asset class, while the current uncertainty and disruptions are short-term. Even as investors and developers are more cautious right now, “over the long run, CRE should continue to acquit itself as it has many times over,” he said.
Perryman and O’Kane also explained that commercial real estate encompasses many uses and classes, and not all sectors are destined for problems. O’Kane explained that industrial and logistic assets could experience sustained demand in the face of realigned supply chains, “while office and retail remain bifurcated stories depending on geography and asset quality.”
Furthermore, the question of real estate performance rests on corporate activity. Healthy businesses stay put or expand within the space they own or lease, which can boost real estate value. As such, “The countries with the most resilient economies will see better performance in their commercial real estate markets, though remote work and other changes will play an ongoing role,” Perryman said.
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