Industrial tenants are likely to pull back on plans for signing new leases as they wrestle with uncertainty over tariffs, CBRE says in a report.
Third-party logistics providers could pick up some of that slack, though, as industrial tenants turn to them as a hedge against the short-term uncertainty they face, the report says.
“We expect that some large industrial occupiers may delay signing leases in the near term, with third-party logistics (3PL) companies accounting for a larger share of leasing activity as more businesses rely on them amid uncertainty,” CBRE says in its report, “On Again, Off Again: Tariffs & Commercial Real Estate.”
Commercial real estate could see some long-term gain from the tariffs, which for now the administration is focusing on Canada, Mexico and China. Although there’s a short-term pause on tariffs subject to the 2020 USMCA free-trade agreement among the U.S., Canada and Mexico, additional tariffs are also being considered, the report says.
The tariffs may lead some companies to move manufacturing to the U.S., which could benefit industrial properties, but only if other countries don’t leave long-term retaliatory tariffs in place, the report says.
Some real estate markets could also benefit while the tariffs are in place by leveraging their place in Mexican trade routes.
“Tariffs on Mexican goods could adversely affect El Paso and Laredo in the short term [but] longer term, these markets would benefit from proximity to Mexico’s low-cost manufacturing base and the intellectual property protections contained in the USMCA, which will ultimately underpin demand for warehouse space.” the report says.
CBRE doesn’t see a similar benefit to a key market aligned with Canada – Detroit – because of its dependence on the auto industry, which is expected to be the hardest hit of all industries if the tariffs are imposed after the pause and stay in place.
“Tariffs on Canadian goods pose the greatest risk to Detroit due to its proximity to the border and its reliance on Canadian-manufactured auto parts,” the report says.
Retail is likely to be the other hard-hit property type. If the tariffs stay in place, consumers are expected to face higher costs of as much as $1,200 a year, which will slow their retail spending.
“Tariffs can reduce overall spending power and slow economic growth since their costs are often passed on to consumers,” the report says. “Over the short term, this can cause companies to delay signing leases.”
Offices are in a better position. Although they’ll be affected by any economic downturn the tariffs cause, the long-term recovery that began after the COVID-19 pandemic ended is expected to continue.
Offices “should continue to benefit from return-to-office and flight-to-quality trends, as well as considerable pent-up demand for prime space in major cities,” the report says.
