Recent tariff announcements by the Trump administration have had a significant impact on capital markets and commercial real estate (CRE) performance expectations, injecting considerable volatility and uncertainty into CRE markets. The news is impacting investor appetite for most forms of capital allocation, most notably for investors though, is the impact tariff announcements have had on bond yields.
Here’s a breakdown of the situation and the market reactions.
Tariff Announcement Timeline
April 2, 2025
President Trump announced a new universal baseline tariff of 10% on all imports, effective April 5, and threatened higher “reciprocal” tariffs on various countries based on trade imbalances, which were to begin April 9. He also ended the de minimis import tax exemption for China on this day.
Early-Mid April 2025
While higher reciprocal tariffs were briefly implemented on April 9, they were quickly suspended for 90 days for most countries except China due to adverse market reactions. Throughout April, tariffs on specific sectors like autos and increased steel and aluminum tariffs were also active.
By May 12, 2025
The U.S. and China agreed to a 90-day partial rollback of some of the most recent high tariff rates, with U.S. tariffs on many Chinese goods reducing to around 30% and China reducing retaliatory tariffs.
May 23, 2025
Recent reports indicate President Trump threatened new 50% tariffs on imports from the European Union, potentially starting July 9, 2025, and reiterated considerations for tariffs on Apple products not manufactured in the U.S.
This jagged and unpredictable policy path wreaked havoc on financial markets, sending stocks up and down at near record passes. Consumer sentiment fell sharply this spring, largely due to tariff announcements and perceived weakness in the economy.
Next, let’s dive into each of the ways the shifting trade landscape is set to impact CRE performance and investment.
Capital Markets
The tariff announcements, particularly the sweeping April 2 measures, triggered significant volatility across global financial markets. The VIX, often called the “fear gauge,” spiked to over 45 in early April, indicating a sharp increase in investor uncertainty. Uncertainty and active market swings are good for day traders, but uncertainty usually sparks a “wait-and-see” approach from economists, the Fed, lenders, and CRE investors.
Economists and financial institutions revised their forecasts, generally expecting lower global and U.S. GDP growth and higher inflation as a result of the tariffs. BlackRock, for example, lowered its 2025 U.S. GDP growth expectation to 0% and raised its core inflation expectation to 3.8% following the April announcements. Some analysts predict a U.S. recession in 2025 is now highly likely. This volatility has unique implications for investor behavior.
Economists and financial institutions revised their forecasts, generally expecting lower global and U.S. GDP growth and higher inflation as a result of the tariffs. BlackRock, for example, lowered its 2025 U.S. GDP growth expectation to 0% and raised its core inflation expectation to 3.8% following the April announcements. Some analysts predict a U.S. recession in 2025 is now highly likely. This volatility has unique implications for investor behavior.
U.S. corporate credit markets also felt the impact, highlighting that the capital market dynamics in 2025 are driven by more than just tariffs. Trading volumes rose to 2025 highs in early April, and bid/offer spreads in corporate bonds widened dramatically during the peak volatility. This makes it harder for corporations to raise money in bond markets, lifting the cost they pay on newly issued capital, which in turn could restrict expansion and growth for the next one to five years at firms with significant debt maturing this spring.
At the same time, Treasury bonds, the benchmark for CRE lending rates, are dealing with a battle between two forces, which is keeping the 10-year rate locked between 4.1% and 4.6%. First, the drop in consumer sentiment and economic growth expectations is putting downward pressure on these rates. If you graph the 10-year Treasury next to consumer sentiment for 2024, the relationship is easy to see.
But, at the end of Biden’s presidency, the U.S. Treasury Department issued a wave of short-term debt that matured this spring. The Trump administration was forced to kick more short-term debt into longer-term bonds, like the 5-year and 10-year, flooding the Treasury market, and keeping the rates from falling with economic expectations, making the Treasury levels more representative of bond market supply-and-demand than current economic expectations.
The delay in rate decreases is preventing a run-up in CRE transactions while also complicating any refinancing efforts for investors with maturing debt. Luckily for borrowers, the administration should be able to have kicked all of the short-term debt out by the second half of 2025 or 2026, and that is when we are likely to see 10-year Treasury rates down below 4%.
Industrial
The biggest question mark in the tariff debate is the long-term impact it will have on global supply chains. The U.S. has long relied on goods made in China, and even small movements away from that would have massive impacts on where and how goods are stored. Even with the U.S. and China striking a deal on trade in May, it’s uncertain how firms will react, given they had already made plans to become less dependent on China.
Some firms, like Apple, have begun the process of relocating manufacturing hubs from China to India, a shift that, if widespread, would redirect the majority of import activity away from western hubs like Los Angeles to eastern ports like New York and Savannah. This is due to the speed and cost of shipping routes. To get from India to the U.S. West Coast takes roughly a week longer than from India to the U.S. East Coast.
Other firms, including IBM, Merck, and Roche, have announced intentions to bring manufacturing back to the U.S. This would be a massive win for U.S. manufacturing facilities, especially the modern big-box product that has seen vacancy climb since 2023. The largest industrial REIT owner in the U.S. Prologis used Brexit to illustrate that major trade disruptions, while challenging initially, tend to force businesses to adopt less efficient but more resilient supply chains that require larger inventory holdings, ultimately driving demand for the logistics real estate Prologis provides.
In Q1, the U.S. Census Bureau recorded a surge in import activity from Europe, and these goods will follow the same shipping route to the U.S. East Coast.
Retail
The pullback in economic confidence is likely to spark a slowdown in consumer spending, especially luxury and discretionary items, including travel. The National Retail Federation is forecasting a “slower trajectory for consumer spending” in 2025 due to the uncertainty and inflation fears fueled by tariffs. Major purchases, like new cars and homes, will likely be put on hold for most households.
Another factor is the rising cost of imported goods. While some companies have announced plans to reshore or nearshore production, these processes take multiple years to come to fruition. In the meantime, consumer prices will rise, inflation will remain sticky, and workers will be able to buy less with their discretionary budgets. Businesses should expect less dining out, fewer shopping trips, and more moderate spending in the months ahead.
Luckily for the retail sector, vacancy has been near record lows for almost two years. Developers have largely neglected the property type, and some loosening in the market will likely spur heightened leasing and tenant upgrades for the most successful retailers.
Hospitality
The outlook for hotels is further complicated by disputes with China and the EU, whose populations have recorded a major pullback in international travel bookings in the U.S. A less healthy American consumer, combined with a sharp drop in international travel, is a double whammy that hotel chains will have to navigate this spring and summer.
Advanced travel bookings between Canada and the U.S. for the summer months (April through September) are reported to be down dramatically, potentially over 70% year-over-year, according to OAG aviation data. Flight Centre Canada also noted a 40% drop in Canadian business travel to the United States. Other Canadian airlines like Air Canada and WestJet are reportedly cutting back capacity on routes to U.S. cities due to weakening demand and reallocating planes to other markets, such as Europe.
Similarly, major European airlines, including Air France-KLM and Lufthansa, have reported weakening demand and a slowdown in bookings from Europe to the U.S. for the early summer months. Air France-KLM specifically noted a 2.4% decline in these transatlantic bookings.
While retail’s outlook can be rapidly improved with trade deal announcements and positive economic data, hotels are more dependent on sustained long-term confidence and should expect lower international bookings this summer.
Looking Ahead
In conclusion, the Trump administration’s recent and dynamic tariff policies have cast a long shadow of uncertainty and volatility across the commercial real estate landscape. Beyond the direct cost implications, these trade measures have significantly disrupted capital markets, influencing investor sentiment, complicating lending environments due to Treasury market fluctuations, and forcing a widespread “wait-and-see” approach. While the industrial sector may find long-term opportunities in shifting supply chains and reshoring efforts, the immediate outlook for retail and hospitality is more challenged, facing reduced consumer spending and a sharp decline in international travel. Ultimately, navigating this unpredictable trade environment will require CRE investors and stakeholders to remain agile and closely monitor both the direct impacts of tariffs and their complex interplay with broader economic and capital market conditions.
