Tariffs Threaten to Stall CRE Projects, Push Costs Up 5%

CBRE warns that newly imposed tariffs on steel, aluminum, and other imports could increase construction costs by up to 5%.

Jordan B.
March 21, 2025

Together with

Good morning. CBRE warns that newly imposed tariffs on steel, aluminum, and other imports could increase construction costs by up to 5%, causing project delays and uncertainty across commercial real estate.

Today’s issue is brought to you by RAD Intel—the AI future of marketing.

🎙️ No Cap Podcast – Where is the self-storage industry headed in the next few years? Cris Burnam, CEO of StorageMart, joins Jack Stone and Alex Gornik to discuss the challenges and the opportunities that lie ahead.

Market Snapshot

S&P 500

GSPC

5,662.89

Pct Chg:
-0.22%

FTSE NAREIT

FNER

778.48

Pct Chg:
-0.18%

10Y Treasury

TNX

4.285%

Pct Chg:
-0.0229

SOFR

30-DAY AVERAGE

4.342%

Pct Chg:
-0.00

*Data as of 03/20/2024 market close.

Construction Costs

Tariffs Are Back—and CRE May Pay the Price

A fresh round of tariffs is set to shake construction budgets, stall developments, and inject new uncertainty into the commercial real estate market.

Tariffs return: The Trump administration’s latest round of 25% tariffs—this time covering all steel and aluminum imports, plus most from Canada and Mexico—is poised to hit the construction sector hard. CBRE estimates a 3%–5% increase in development costs, as contractors struggle with volatile pricing and risk-heavy bidding conditions.

Sector sensitivity: Industrial and retail projects will likely feel the impact first, with multifamily not far behind. Multifamily just saw a record 118% YoY absorption increase in Q4 2024, but higher costs could slow development. In the short term, that slowdown might help balance the market by allowing demand to catch up with recent supply surges.

Déjà Vu for developers: The 2018 tariffs caused a spike in construction costs and slowed growth, despite a modest increase in U.S. steel production. This time, the broader scope—including long-standing partners like Canada and Mexico—raises the stakes. Dodge Construction warns that more project delays or cancellations are likely.

Figure 1: Country of Origin Share of Imports at All U.S. Ports (CBRE)

Zoom in: Nearly 30% of steel used in the U.S. is imported, with 82% of that coming from countries under special trade agreements. Canada alone supplies 30% of U.S. softwood lumber. Lumber prices were already climbing, hitting nearly $700 in early March—even before this new wave of tariffs. The Fed is watching closely, noting that inflation impacts could be temporary, but uncertainty remains high.

➥ THE TAKEAWAY

The bottom line: Tariffs bring short-term pain but long-term potential. Expect some CRE slowdown amid trade uncertainty—but rate cuts, stable yields, and savvy investors hunting deals could keep the market moving.

TOGETHER WITH RAD INTEL

This AI Company Makes Real Estate Ads Actually Work

Billions are spent on real estate marketing every year, yet most ads fail to convert.

RAD Intel’s groundbreaking AI connects brands to the right audiences, with the right messaging, at the right moment. With billions of digital ads viewed daily, global brands rely on RAD for their ongoing content needs.

As a pre-IPO company, RAD Intel is backed by Adobe and Fidelity, helping Fortune 1000 brands craft AI-driven content that actually resonates—delivering up to 3.5X ROI.

With $37M+ raised and 6,000+ investors, RAD’s AI is reshaping how properties get seen and sold.

Invest now at $0.55/share before RAD’s share price changes on April 10th!

*Disclosure: This is a paid advertisement. Please read the disclosure at the bottom of the newsletter.

✍️ Editor’s Picks

Investor sentiment: The Q1 2025 JBREC + CRE Daily Fear and Greed Index is in. CRE investors appear to be waiting for clarity—carefully optimistic, but still holding back.
Florida tax debate: Florida lawmakers consider eliminating property taxes amid soaring home costs, but concerns over funding gaps and economic impact make the proposal highly contentious.
Institutional shifts: Institutional investors are increasing allocations to private infrastructure (50%) and real estate (37%) as they seek inflation-resistant returns amid economic uncertainty.
Downtown revival: Top business leaders, including Sam Altman and Jony Ive, formed a coalition to tackle public safety, homelessness, and economic recovery in San Francisco.
Revised water rule: The EPA plans to redefine “waters of the US” to lower construction costs while maintaining water protections, incorporating a recent Supreme Court ruling.
Balance sheet tweak: To avoid market disruptions amid the looming debt ceiling, the Fed will reduce its monthly Treasury runoff from $25B to $5B starting in April.

🏘️ MULTIFAMILY

Federal land for housing: HUD and DOI launched a task force to repurpose federal land for affordable housing, potentially enabling 3M–4M new homes amid ongoing supply shortages.
Landing the loan: Baron Property Group secured a $206M construction loan for a 661-unit multifamily project in Hialeah, with completion expected by late 2027.
Rent slump reversal: Declining multifamily permitting—down to 294K units in 2024—could tighten supply and push rents higher in high-demand markets, per Realtor’s latest report.
Fannie resignation: Christopher Stanley resigned from Fannie Mae’s (FNMA) board just one day after his appointment amid FHFA upheaval, as Bill Pulte reshapes leadership at Fannie and Freddie.
Refinancing in Dallas: Kairoi Residential secured a $62M loan to refinance The Bohéme, a 352-unit luxury apartment complex in Dallas' Bishop Arts District.

🏭 Industrial

Phoenix portfolio: BKM Capital Partners acquired four Phoenix industrial properties totaling 936K SF for $191.9M, with plans for $8.6M in upgrades amid strong market demand.
Entering South Florida: New Jersey-based Sitex Group acquired two warehouses in Fort Lauderdale for $9.35M, marking its South Florida entry with plans for further expansion.
Exiting terminal lease: Defunct trucking firm Yellow terminated its lease on a 51-acre terminal near Los Angeles, with landlord Realterm paying $55M for the agreement.

🏬 RETAIL

Not forever: Fast-fashion retailer Forever 21 filed for bankruptcy for the second time, leaving vacancies in 32 Texas malls as it seeks a buyer for its remaining assets.
Service outpaces retail: Service-based tenants, led by F&B, fitness, and healthcare, are set to lease more space than goods-based retailers in 2025 as retail closures free up 140M SF.
Facing default: Harlem USA’s $108M mortgage is at risk of default amid 26% vacancy, though co-owner Grid Properties remains confident in leasing and cash flow stability.
Landing and expanding: Publix acquired a store near Galleria Mall for $25M, continuing its South Florida buying spree, which has totaled $273M since last year.

🏢 OFFICE

Office market stabilizing: NYC’s office sector led recoveries in 2024, with Class A rents peaking, TAMI leasing surging, and landlords offering record-high tenant improvement packages.
Mandated office return: Freddie Mac (FMCC) employees must return to the office five days a week starting in May, per a memo from FHFA Director Bill Pulte and CEO Diana Reid.
Loan of the day: Three Manhattan office towers landed billion-dollar CMBS loans in February, showing strong lender confidence amid a broader surge in bond issuances.

🏨 HOSPITALITY

Windy City visit: Aquinnah Investment Trust proposed a 28-story, 250-key hotel near the upcoming Barack Obama Presidential Center, amid rising developer interest in Chicago’s South Side.