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Steel, lumber, and trump tariffs: What rising construction costs mean for commercial real estate development

Kinexio

04 May,2025

1 min read

In 2025, commercial real estate developers are facing a challenging landscape. The reintroduction of tariffs by President Donald Trump has led to increased costs for essential building materials like steel, aluminum, and lumber. These rising expenses are affecting project budgets, timelines, and overall feasibility, compelling developers to reassess their strategies.

Trump tariffs drive up construction material costs

The U.S. administration’s tariffs have significantly impacted the cost of construction materials. A 25% tariff on steel and aluminum imports, along with a 14.5% duty on Canadian softwood lumber, has escalated expenses for developers. According to the National Association of Home Builders (NAHB), these tariffs have added approximately $10,900 to the cost of building a new home.

These increased costs are not limited to residential projects. Commercial developments are also feeling the pressure. Anirban Basu, chief economist at Associated Builders and Contractors, notes that material prices are likely to rise in the coming months, particularly for iron, steel, and aluminum products .

Regional impact of tariffs: U.S., U.K., and Europe

United States

United Kingdom

Europe

In the U.S., the tariffs have led to a 0.5% decline in construction spending in March 2025, marking a reversal from previous growth . Private non-residential construction saw a 0.8% drop, with developers citing increased material costs as a significant factor

While the U.K. is not directly subject to U.S. tariffs, the global market adjustments have indirect effects. The U.S. tariffs on steel have led to an oversupply in Europe, potentially lowering prices for U.K. builders. However, U.K. steel manufacturers facing reduced export opportunities may increase domestic prices to compensate .

In Europe, the imposition of a 20% tariff on EU goods by the U.S. has dampened economic optimism. Germany, heavily reliant on exports, has revised its 2025 growth forecast to zero, with the European Commission’s sentiment index dropping to a low of 93.6 in March . These economic shifts are expected to impact construction activity and investment across the continent.

Strategic response to tariffs for CRE developers

1. Diversify Supply Chains

Developers are seeking alternative suppliers to mitigate the impact of tariffs. By sourcing materials from countries not affected by U.S. tariffs or increasing reliance on domestic products, developers aim to control costs and reduce delays.

2. Incorporate Tariff Clauses in Contracts

To manage financial risks, some developers are including tariff adjustment clauses in their contracts. These provisions allow for cost adjustments based on fluctuations in material prices due to tariffs, providing a buffer against unforeseen expenses

3. Embrace Modular Construction

Modular construction techniques, which involve assembling sections of a building off-site, can offer cost savings and efficiency. By standardizing components and reducing on-site labor, developers can better manage budgets in the face of rising material costs.

Tariffs increase stock market pressures on lumber and steel

Beyond the construction site, tariffs have been rippling through the stock market, directly affecting the trading prices of lumber and steel.

Steel Stocks: Since the reimposition of tariffs, shares of major U.S. steelmakers like U.S. Steel (X) and Nucor (NUE) have seen price volatility. While domestic producers initially benefit from reduced foreign competition, analysts warn that tariffs can inflate input costs and suppress downstream demand from construction and manufacturing sectors, ultimately dragging on profits

steel stock

Lumber Prices: Lumber futures, which spiked during the post-pandemic construction boom, have experienced renewed turbulence as tariffs raise the cost of Canadian imports, which supply roughly 30% of U.S. lumber needs. According to the CME Group, softwood lumber futures climbed 12% in Q1 2025 following tariff announcements, raising concerns among builders and developers about sustained price hikes

lumber stock

Tariffs drive the need for innovation

The reimplementation of tariffs in 2025 has introduced significant challenges for commercial real estate development. Rising material costs are affecting project viability, timelines, and profitability, while market volatility in steel and lumber stocks compounds the uncertainty. Strategic measures such as diversifying supply chains, adjusting contracts, and exploring innovative construction methods, will allow CRE developers to navigate this complex environment and continue to deliver successful projects.

See also

FAQ

How are tariffs driving innovation in commercial real estate (CRE)?

Tariffs raise material and operating costs, forcing CRE developers, landlords, and investors to rethink traditional models. Many are turning to innovations like modular construction, alternative materials, and advanced supply chain strategies to manage costs and reduce delays. Landlords are also adopting tenant engagement technologies and sustainability initiatives to deliver more value and differentiate in a tighter leasing market. In short, tariffs push CRE players to become more agile, technologically advanced, and focused on service—not just space—to stay competitive in a disrupted global environment.

What types of technology are helping CRE businesses respond to tariffs?

CRE businesses are increasingly adopting technologies like tenant experience platforms, predictive analytics, and supply chain management tools to navigate tariff-related challenges. These innovations help landlords communicate effectively, personalize services, and monitor tenant needs in real time. On the development side, digital modeling, modular construction systems, and AI-driven procurement tools help reduce costs and optimize materials sourcing. By using technology to improve efficiency, data visibility, and tenant satisfaction, CRE operators can offset some of the financial pressures tariffs impose and position themselves for long-term success.

Which CRE sectors are most affected by tariffs, and how are they adapting?

Industrial real estate, especially near ports and trade hubs, is heavily impacted by tariffs because it’s directly tied to global supply chains. Retail properties also feel the squeeze as tariffs increase product costs, affecting tenant margins and store performance. In contrast, sectors like data centers, healthcare facilities, and life sciences labs are less exposed and are attracting more investor attention. Across all sectors, adaptive landlords are responding by diversifying tenant mixes, investing in flexible space models, and enhancing sustainability performance—strategies that not only manage tariff risks but also future-proof assets.

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