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Commercial real estate and the tariff test: How will the asset class respond

May 5, 2025 | 2 min read
Rich Hill
Global Head of Real Estate Research & Strategy
Art Jones
Senior Director, Global Real Estate Research and Strategy
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The announcement of the Trump administration’s tariff hikes on April 2nd roiled global asset markets and created a sense of agita among investors, including and especially those focused on real estate. Under the current play, including all 2025 tariffs, the effective average custom duty paid on imported goods would increase 22.4%; surpassing the Smooth-Hawley tariffs in 1930. Since 2022, real estate assets have experienced a corrective environment driven primarily by high inflation and rising interest rates. Entering 2025, underlying asset values had experienced a correction of roughly 20% despite a lack of macroeconomic distress, which has historically been highly correlated with shifts in pricing cycles. While net operating income (NOI) growth remains largely positive and supportive of a recovery in values, the tariffs create a specter of another shock for a sector waiting for a sustained recovery to take hold.

US average effective tariff rate since 1918

Customs duty revenue as a percent of goods imports

Effective Tariff Rate
Remain at default Under 2024 policy + April Announcement only
Remain at default Under all 2025 tariffs through April 2
U.S. average tariff rate since 1918 showing the max rate in the 1930s and mostly declining since then.

Source: Historical Statistics of the United States Ea424-434, Monthly Treasury Statement, Bureau of Economic Analysis, The Budget Lab analysis.

In this bulletin, we discuss four potential macroeconomic scenarios and their impact on the real estate cycle over the next 12 months. In addition, we also discuss the potential impacts of renewed tariffs and a potential trade war across the primary asset markets, including private debt and equity, public markets, and infrastructure. As the policy environment is moving both quickly and unpredictably, we envision periodic updates to both our scenarios and viewpoints on the market. This bulletin builds upon our high level views that we expressed on our latest insights report titled Resilience and risk: Navigating CRE valuations in an unprecedented tariff-laden environment.

For more on the potential macroeconomic scenarios impacting the commercial real estate market and perspectives from each of the real estate and private market assets classes, access the full report.
Real estate
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Investing involves risk, including possible loss of principal. Past Performance does not guarantee future return. Real estate investment options, such as real estate investment trusts (REITs) and commercial mortgage backed securities (CMBS), are subject to risks associated with credit, liquidity, interest rate fluctuation, adverse general and local economic conditions, and decreases in real estate values and occupancy rates. Commercial Mortgage Backed Securities carry greater risk compared to other securities in times of market stress. Investments in private debt, including leveraged loans, middle market loans, and mezzanine debt, second liens, are subject to various risk factors, including credit risk, liquidity risk and interest rate risk. Infrastructure companies may be subject to a variety of factors that may adversely affect their business, including high interest costs, high leverage, regulation costs, economic slowdown, surplus capacity, increased competition, lack of fuel availability, and energy conservation policies.

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