The impact of tariffs on the commercial real estate market is still unfolding, but early signs of strain are emerging in the retail and industrial sectors, according to Whitley Collins, global president of advisory and transaction services for occupiers at CBRE.
“The biggest immediate impact is on retailers, which then affects manufacturing and distribution,” Collins said in a recent interview. “Retailers are trying to understand how tariffs will affect their businesses, so we’re seeing many retail deals put on hold. The same is happening in industrial real estate.”
CBRE’s Q1 retail report showed that net absorption in U.S. retail space—encompassing malls, big box stores, and power centers—turned negative for the first time since Q3 2020. This reflects a cautious start to the year, as retailers pull back on expansion plans amid economic uncertainty.
Industrial tenants are also taking a more conservative stance, delaying decisions due to uncertainty about the effects of broad tariffs. CBRE’s Q1 industrial report noted that these trade measures are expected to significantly impact market activity. Meanwhile, the national industrial vacancy rate rose to 6.3%—the highest level since Q2 2014.
By contrast, the office sector has seen less disruption from tariffs. Collins noted a few isolated cases, such as deals in the Washington, D.C. area where tenants paused negotiations due to unpredictable costs for furniture and construction materials, which could inflate project budgets by 10% to 15%. However, he stressed that this uncertainty is only one factor and not as impactful as what’s happening in retail and industrial markets.
“Those office pauses were about pricing clarity,” Collins said. “In retail and industrial, businesses are pausing because tariffs could fundamentally affect their operations.”
Despite ongoing challenges from remote work trends, the office market showed signs of stability in CBRE’s Q1 data. The national vacancy rate held steady at 19%, still near a 30-year high. However, the quarter marked the fourth consecutive period of positive demand, and leasing activity rose 18% year-over-year, with growth in major cities like Manhattan, Chicago, Los Angeles, San Francisco, and Boston.
Notably, lease renewals—often chosen to avoid the costs of relocating—made up 40% of all leasing activity, up from about 30% pre-pandemic. Jessica Morin, CBRE’s director of U.S. office research, expects this trend to continue.
“Many tenants are staying put to avoid moving and build-out costs,” she said, adding that landlords’ willingness to offer tenant-friendly terms is keeping renewals strong.
Source: CFO DIVE
