As commercial real estate (CRE) navigates a period of slowed leasing activity, landlords and property managers are pivoting from traditional roles to become service-oriented partners. Central to this movement is a renewed focus on tenant engagement – a strategy aimed at enhancing tenant satisfaction, retention, and overall asset performance.
But what’s impacting the slowdown of leasing rates, driving the shift to service?
One culprit is Tariffs.
The deployment of tariffs has introduced significant volatility into the market, leading companies to reassess or delay their leasing decisions. For example, the U.S. office market, which had shown signs of recovery with 115 million square feet leased in Q1 2025—the highest since 2019—is now facing headwinds. Concerns over higher tariffs and potential recession risks are causing businesses to pause or slow their office leasing plans.
And even if tariffs get reigned in, it’s the uncertainty of not knowing what tomorrow brings, that entices business to batten down the hatches and wait for calmer waters.
Tariffs on essential building materials like steel, aluminium, and lumber have driven up construction costs for both residential and commercial properties across the States. Trump’s initial tariffs, introduced during his presidency in 2018, included steep levies on imported steel and aluminium, 25% and 10%, respectively. Developers and builders are adjusting budgets to account for these rising costs, often leading to project overruns, postponements, or cancellations. These increased costs are being passed down to tenants, putting upward pressure on rents, especially in sectors where demand remains strong and new supply is facing constraints and delays.
The knock-on effect? Project delays, scaled-back specs, and in some cases, cancellations.
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Over the past five years, industrial real estate has been the golden child of CRE, buoyed by e-commerce and last-mile logistics. However, Trump’s new round of tariffs is poised to dampen that enthusiasm. The Wall Street Journal reports that prized seaside warehouses – essential to U.S. import infrastructure – are among the hardest hit, as reduced trade volumes cut into occupancy and rental income. Prologis, a global logistics REIT with strong coastal exposure, has seen a nearly 10% dip in its stock value since the policy was floated.
Already bruised by the long tail of the pandemic and the relentless march of e-commerce, retail REITs are now grappling with a fresh threat: price inflation. Tariffs on consumer goods may force retailers to raise prices, putting further pressure on spending and footfall in malls and shopping centers.
Companies facing higher costs due to tariffs may slow hiring or downsize office footprints, further impeding the office sector, which had only recently begun to show signs of recovery from the impacts of COVID-19.
Commercial real estate has long benefited from international capital, particularly from China and the Middle East. But the increasingly hostile trade climate is giving foreign investors pause. CBRE and JLL, two of the world’s largest real estate advisory firms, have both noted tighter credit conditions and increased scrutiny on deals involving overseas buyers.
The CRE market has experienced a notable deceleration in leasing activity. For instance, office vacancy rates in the U.S. have risen to 19.7% as of February 2025, reflecting a 180 basis point increase year-over-year . This uptick is attributed to factors such as the persistence of hybrid work models and economic uncertainties.
Some segments, like data centers and residential REITs, may prove more resilient as they are less tied to international trade or consumer spending. As Investopedia notes, “shelter-oriented” assets are increasingly seen as safe havens amid volatility.
While tariffs may be a political tool aimed at strengthening domestic industry, they carry wide-reaching consequences for real estate. From construction sites to trading floors, commercial property professionals are navigating a new normal – one where global politics and local investments are more tightly bound than ever.
One thing is for sure, it’s more vital than ever to retain and build strong relationships with the tenants you currently have.
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As tariffs raise costs and shake market confidence, tenant engagement has emerged as a strategic lever for property owners to mitigate risk and retain value. In an environment where both landlords and occupiers are under financial pressure, engagement strategies offer a way to maintain stability and strengthen tenant relationships.
During periods of economic uncertainty, proactive communication helps foster trust. Landlords can:
– Share updates about how tariffs may affect operations or building services
– Offer tenants insight into shared cost increases and work collaboratively to find solutions
– Use digital platforms to provide real-time updates and resources
Tariff-related cost increases may tighten tenant budgets. Owners can mitigate potential churn by:
– Offering short-term renewals or rent relief options for affected businesses
– Providing access to shared services or co-tenancy programs that help reduce operating costs
– Collaborating with tenants on in-building activations that drive foot traffic or sales
A connected tenant community can improve retention, particularly in challenging economic climates. Engagement strategies can include:
– Hosting networking events or educational sessions about navigating economic uncertainty
– Highlighting and supporting local tenant businesses through in-building promotions or digital spotlights
– Creating affinity programs that reward participation and foster a sense of belonging
Tenant experience platforms generate valuable insights into tenant satisfaction, usage patterns, and churn risks. This intelligence helps landlords:
– Predict vacancy risk and preemptively address tenant concerns
– Tailor support offerings based on tenant type or sentiment
– Prioritize capital improvements or services that deliver the most value during leaner times.
FAQ
Tariffs increase the cost of construction materials like steel and lumber, which raises development and renovation costs for commercial landlords. These higher costs can lead to increased rents or slowed leasing activity as tenants reassess their budgets. Additionally, economic uncertainty caused by tariffs can make companies cautious, leading to fewer new lease signings or expansions. Landlords face pressure to maintain occupancy and must find ways to offer value beyond rent, such as enhanced tenant engagement, flexible lease terms, or sustainability initiatives, to remain competitive despite market headwinds.
Tenant engagement refers to the strategies landlords use to build strong relationships with tenants, including proactive communication, personalized services, community-building, and access to amenities. During times of tariff-driven economic uncertainty, tenant engagement becomes even more important. Engaged tenants are more likely to stay, renew leases, and feel supported, even when facing cost pressures. Effective engagement can help landlords reduce vacancy risk, gather valuable feedback, and deliver services that increase tenant satisfaction and loyalty—ultimately protecting the asset’s value despite external economic challenges.
Landlords can leverage tenant engagement platforms and strategies to offset some tariff-related risks. By improving communication about shared costs, offering flexible lease structures, supporting tenants through economic challenges, and creating a strong sense of community, landlords can retain tenants even when market conditions tighten. Digital engagement tools also generate data that help identify at-risk tenants, enabling landlords to intervene early. Additionally, offering shared services, wellness programs, or in-building events can enhance tenant satisfaction and justify occupancy, helping landlords maintain cash flow even as construction or operating costs rise due to tariffs.
