**Washington**: Recent tariff announcements by the Trump administration have created confusion and uncertainty within the commercial real estate sector. Stakeholders are grappling with shifting policies, complicating deal-making processes and prompting the inclusion of escalation clauses in contracts to manage future cost risks.
In recent days, the landscape of tariffs under the Trump administration has shifted dramatically, creating significant uncertainty in the commercial real estate (CRE) sector. On Monday night, President Donald Trump announced a 25% tariff on imports from Canada and Mexico, effective Tuesday morning, with implications suggesting further actions against China. However, the narrative took multiple twists as the week progressed. By Tuesday, Commerce Secretary Howard Lutnick indicated the possibility of compromise, leading to Trump granting a one-month exemption for automakers by Wednesday. Following these developments, tariffs on specific imports from Canada and Mexico were suspended until April 2.
This series of abrupt changes commenced a month ago when tariffs were first imposed on the three nations but were largely paused just 36 hours later. The continuous up and down of these policies has left stakeholders in the commercial real estate industry grappling with uncertainties. Julie Workman, a real estate attorney at Chicago-based law firm Saul Ewing, captured this sentiment succinctly: “The biggest takeaway of all of this is that we’re all experiencing this major whiplash.” She elaborated on the situation, highlighting that “what’s true today might not be true tomorrow.”
CRE professionals, interviewed by Bisnow, have reported that the erratic implementation of tariffs has complicated deal-making processes, forcing some to take a cautious approach while others are accelerating efforts to finalise transactions before policies tighten again. Danny Diaz Leyva, a Miami-based attorney with Day Pitney, noted the industry’s desire for implementation and consistency, referencing the confusion that arises when policies shift rapidly.
The financial implications of these tariffs, if they were fully enacted, could be substantial. A recent estimate from Chicago-based Origin Investments suggested that construction material prices could rise by as much as 7.5%, with lumber projected to jump as much as 40.9%. The U.S. futures market for lumber reflected this volatility, reaching its highest levels since August 2022.
The shifting nature of tariffs has resulted in a heightened need for communication among developers and contractors, with parties reportedly checking in more frequently throughout the construction process. Chris Kelly, a partner in Anchin’s construction group in New York, observed that teams are now having biweekly conversations to navigate the complexities imposed by rapid policy changes.
For future contracts, it is becoming common for contractors and subcontractors to include escalation clauses—provisions allowing for price adjustments—in order to mitigate the risks associated with unexpected cost increases. This development indicates a shift in how contracts are constructed in response to the evolving trade environment.
Statistics from the Commerce Department revealed that the U.S. trade deficit surged by 34% in January to $131.4 billion. Import values increased to a record $401.2 billion, painting a picture of a fluctuating trade landscape amidst ongoing tariff discussions.
Despite these uncertainties, some developers are proceeding with their plans, particularly those who have preordered materials. Lanné Bennett, executive vice president at Urbanlime Real Estate in Los Angeles, remarked that she has not observed a slowdown in transaction activity, suggesting that many in the industry are attempting to continue business as usual. She noted, “If I didn’t read the headlines every day… I would not know anything’s going on.”
However, others in the sector have voiced concerns about the long-term implications of the tariffs. Tim Bodner, partner and real estate deals leader at PwC US, expressed that while companies are not dramatically altering their business plans due to the existence of tariffs, there is potential for future projects to face delays or deferrals as developers await clarity on the evolving trade situation. Bennett reiterated that even temporary tariffs could have lasting ripple effects on project timelines and financing.
As the international response to the U.S. tariffs solidifies, tensions are rising, particularly with countries like Canada and China. Canadian Prime Minister Justin Trudeau condemned the tariffs as counterproductive during a press conference, while the Chinese embassy warned of readiness to engage in trade disputes.
The broader implications of these tariffs, as Workman suggested, illustrate a state of confusion within the industry. With ongoing uncertainties and rapid policy changes, the path forward for CRE remains unpredictable, compelling industry players to continually adapt to an evolving landscape that shows no signs of stabilising in the near future.
Source: Noah Wire Services
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