President Donald Trump on Wednesday announced a 90-day pause on the reciprocal tariffs that went into effect this week, except for those impacting China. Because China issued retaliatory tariffs in response to the 104% tariff imposed by Trump on goods shipped from China to the U.S., the president also said he would be raising the tariff on Chinese goods to 125%, “effective immediately.”
Where to begin? Let’s try to unpack the potential consequences of tariffs on commercial real estate amid the whiplash nature of tariffs and Trump’s trade war, which are already having material ripple effects on U.S. businesses.
Tariff impact for CRE likely to be medium term
While tariffs — and the uncertainty around them — have already affected pricing for construction materials, most of the impact on commercial real estate from President Trump’s trade war will not be felt immediately.
On Wednesday afternoon, Trump said on the social-media platform Truth Social there would be 90-day pause on all reciprocal tariffs except for the ones imposed on China. The flat 10% tariff on most other imports that took effect April 5 remain.
But if the economy were to tip into a recession, the odds of which economists say are heightened by Trump’s trade war, commercial real estate dealmaking and activity will inevitably slow, too.
The predominant concern for commercial real estate so far is how much replacement and construction costs will rise, especially in an environment where recent inflation and capital constraints have already hiked the cost of deals. Tariffs will make more projects unpalatable, and that will create additional pressure on supply, particularly in the housing sectors, Tim Bodner, U.S. real estate deals leader at PricewaterhouseCoopers, told me.
There are also medium-term questions and potential impact that’ve yet to be determined, including whether consumer confidence will slip and lessen demand for certain sectors of the economy — which will then have consequences for commercial real estate.
CRE firms brace for economic uncertainty
Fort Lauderdale, Florida-based BBX Capital is taking numerous steps, including pausing much of its new real estate development, to preserve cash in expectation of forthcoming economic challenges, reports Brian Bandell at the South Florida Business Journal.
BBX says it will reduce staff, potentially sell subsidiaries and investments, possibly terminate certain operations, and reduce executive salaries. Its main investments are multifamily developer Altman Cos., industrial developer Altman Logistics Properties, BBX Sweet Holdings with IT’SUGAR, Las Olas Confections & Snacks and Hoffman’s Chocolates divisions, and Canada-based closet and barn-door manufacturer Renin.
The challenges cited by BBX in a statement include “volatility and turmoil in the economy and markets, the deterioration of the economy generally, announced and the expectation of future tariffs, a forecast of a possible recession and increased unemployment, decreased consumer sentiment and discretionary spending and lower traffic in our retail locations, inflationary conditions, elevated interest rates, and supply chain issues.”
Alan Levan, chairman at BBX, told Bandell tariffs make it difficult to continue with development. BBX will continue ongoing construction but will evaluate whether new projects make sense. Levan also said it’s difficult to forecast where apartment rents will be in two years because consumer confidence may be down.
Elsewhere: Tariffs, expected to increase construction costs everywhere, could further slow construction in Greater Boston, a market already seeing little development, reports Greg Ryan at the Boston Business Journal. And developers who spoke at Atlanta Business Chronicle‘s recent The Future of Downtown event said recent economic turmoil is expected to impact future construction projects and possibly slow lease negotiations with tenants at developments currently underway.
Nationwide considers converting office space
There’s no shortage of office-to-residential conversion conversations happening in downtowns across the U.S. But in a somewhat unique twist, leaders at insurance giant Nationwide Mutual Insurance Co. presented to its board the possibility of converting some of the company’s unused offices in its home city into housing, reports Carrie Ghose at Columbus Business First.
The Columbus, Ohio-based company and its real estate development arm are putting more emphasis on housing because of Central Ohio’s growth, CEO Kirt Walker told Ghose.
They said it: “It’s affordable housing and it’s also housing in general,” Walker said. “Whole bunch of good jobs coming here — we need to make sure that people have a roof over their heads.”
Nationwide is still investigating whether converting its empty offices into housing makes sense, such as determining whether its buildings have the floor plates, plumbing and electrical systems to make a residential conversion possible. For the 9,000-plus Central Ohio employees that work in-office at least part of the time, Nationwide has consolidated to three Columbus-area office buildings.
Source: “The National Observer: Real Estate: Tariffs likely to have indirect impact on CRE at First”
