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Global trade tensions, tariffs, and commercial real estate investment: What investors need to know

Kinexio

04 May,2025

1 min read

As global trade tensions escalate in 2025, CRE investors faces a complex landscape shaped by tariffs, shifting capital flows, and regional disparities. This article delves into the current state of commercial real estate investment, highlighting the impacts of trade policies and offering insights for investors navigating this evolving environment.

The trump tariff effect: A new era of uncertainty

The reintroduction of tariffs by the U.S. administration has introduced significant volatility into global markets. These trade barriers have led to increased costs for construction materials, disrupted supply chains, and heightened investor caution. According to a report by Houlihan Lokey, heightened uncertainty from tariffs may lead to cap rate expansion, thus reducing property values. When coupled with higher expenses due to inflation, the impact could be significant for some sectors.

In the U.S., the construction industry has been particularly affected. Tariffs on steel and aluminum have driven up costs, leading to project delays and cancellations. A report by Business Insider notes that President Trump’s imposition of tariffs on foreign steel, aluminum, and other building materials has driven up costs substantially for American builders and developers .

Private equity and venture capital commercial real estate investment strategies

Private equity (PE) and venture capital (VC) firms are adapting to the new trade environment by diversifying their portfolios and seeking opportunities in less affected regions. McKinsey & Company’s Global Private Markets Report 2025 indicates that while fundraising for buyout, growth equity, and venture capital declined between 23% to 25%, deal value increased across buyout, growth equity, and venture capital sub-asset classes, signaling a strategic pivot in commercial real estate investment approaches.

In the U.K., private equity deal-making surged in 2024, with total investment reaching £63 billion, just 7% below the record high of £68 billion in 2021. This uptick was driven by improving financial conditions and a rebound in investor confidence .

Tariffs geographic CRE investment disparities: U.S., U.K., and Europe

United States

United Kingdom

Europe

The U.S. CRE market is experiencing increased volatility due to tariffs. Coastal industrial real estate sectors, particularly those near major ports like Los Angeles and Houston, are bearing the brunt of reduced international trade, leading to lower occupancy rates and decreased property values .

The U.K. economy is relatively well insulated from the rise in U.S. tariffs, and property even more so. Indeed, while the overall direct impact is likely to be small, some commercial sectors may even see a benefit, such as student accommodation

In Europe, the impact of tariffs varies by sector and country. Logistics and retail may face higher construction and operational costs, while office and residential sectors are less affected. Cushman & Wakefield reports that the European CRE sector is expected to weather the impact of tariff uncertainty and continue expansion, albeit at a moderated pace .

CRE investor sentiment and market outlook

Investor sentiment is shifting in response to trade tensions. DWS CEO Stefan Hoops notes a significant shift in investor behavior, with European retail investors increasingly moving their assets out of the U.S. and reinvesting them in Europe, driven by irreversible fiscal policy changes and growing confidence in Europe’s economic outlook .

Despite these challenges, some investors see opportunities. UBS analysts suggest that Real Estate Investment Trusts (REITs) have outpaced the broader market in 2025 and may continue to do so amid ongoing economic uncertainty, highlighting their minimal international exposure and backing by real assets as advantages during volatile periods .

Strategic considerations for commercial real estate investors

Diversify geographically

Investors should consider reallocating assets to regions less affected by tariffs, such as certain European markets or domestic-focused sectors within the U.S.

Focus on resilient sectors

Sectors like data centers, healthcare facilities, and residential properties may offer more stability amid trade uncertainties.

Monitor policy developments

Staying informed about trade negotiations and potential tariff changes is crucial for timely investment decisions.

Leverage alternative investment vehicles

Exploring private funds or REITs that focus on less impacted sectors can provide diversification and risk mitigation.

Predictions from major CRE investors for 2025: The impact of Trump’s tariffs

As 2025 unfolds, leading commercial real estate (CRE) investors and analysts are offering insights into how global trade tensions and economic shifts are influencing investment strategies. Here are three key predictions from prominent industry players:

Deloitte

JLL

PwC

Deloitte: Growth in alternative assets and digital economy properties

Deloitte’s 2025 Commercial Real Estate Outlook highlights a significant shift toward alternative property types, particularly those aligned with the digital economy. The report notes that younger industry leaders are more inclined to invest in sectors like data centers and telecommunications infrastructure. This trend suggests a potential acceleration in the growth of alternative assets, which could comprise nearly 70% of U.S. commercial real estate portfolios by 2034.

“Recent investor patterns point toward a couple of key subsectors within alternatives as potential drivers of growth,” the report states. “Through the end of 2024, active managers were most frequently reallocating funds toward the digital economy, including data centers and telecommunications, and health care sectors.”

JLL: Early-mover advantage in 2025

JLL’s Global Real Estate Outlook 2025 emphasizes the importance of timely investment decisions. The firm suggests that investors who act early in the year may benefit from favorable conditions before increased competition and market saturation occur.

“Investors deploying capital in 2025 are likely to see an early-mover advantage in terms of returns that will diminish as the cycle matures,” the report notes. “Intensifying supply shortages as completions slow in 2025 will amplify competition for quality existing assets as more investors re-enter the market.”

PwC: Anticipated uptick in CRE transactions

PwC’s Emerging Trends in Real Estate® 2025 report indicates a cautiously optimistic outlook for the CRE sector, with expectations of increased transaction activity driven by lower interest rates and improved market conditions.

“In 2025, we expect lower interest rates will reduce borrowing costs, aid in price discovery, and ultimately encourage an uptick in CRE transactions,” says Angela Cain, ULI Global CEO. “Sentiment is improving, although largely still erring on the side of caution.”

See also

FAQ

How do Trump’s tariffs impact commercial real estate investment?

Trump’s tariffs increase the costs of imported materials like steel, aluminum, and lumber, which raises development expenses and affects new project viability. This uncertainty makes some investors more cautious, slowing capital deployment into certain CRE sectors. However, some investors view market disruptions as opportunities, shifting capital toward less tariff-exposed assets such as healthcare, residential, and data centers. Tariffs also influence cap rates and valuations, as higher construction costs and potential economic slowdowns change the risk-reward profile across different CRE investment types.

Which regions are most resilient to the impact of tariffs on CRE investment?

Regions like the U.K. and parts of Europe are somewhat insulated from U.S.-imposed tariffs, with certain sectors even benefiting from shifting capital flows as investors look for stability outside the U.S. In contrast, U.S. coastal markets tied closely to international trade—such as industrial properties near ports—are more exposed. Within the U.S., investors are focusing on domestic-facing sectors and secondary markets that rely less on global supply chains. Regional resilience often depends on tenant mix, sector exposure, and the ability to pivot investment strategies in response to trade shifts.

How are large CRE investors adapting their strategies in response to tariffs?

Large CRE investors, including private equity firms, REITs, and institutional players, are adapting by diversifying portfolios, focusing on resilient sectors, and seeking early-mover advantages. Many are reallocating capital toward alternative assets like data centers, life sciences, and telecommunications infrastructure, which are less exposed to global trade risks. Some investors are also taking advantage of slowed deal competition to secure quality assets at better valuations. Across the board, firms are enhancing their use of data, predictive analytics, and ESG-focused strategies to future-proof portfolios against both tariff risks and broader economic volatility.

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