Macro and Geopolitical Reset is Reshaping U.S. Commercial Real Estate Demand

By Brian Bailey

A shifting landscape of tariffs and growing consumer doubt is altering the outlook for U.S. commercial real estate. Investors are once again navigating a climate of uncertainty reminiscent of the early pandemic, as fluctuating tariff policies inject volatility into market sentiment. The recent 90-day U.S.–China tariff truce has provided a measure of short-term relief, but it may take time for confidence to fully return. The significant reduction in tariffs on most Chinese imports—from 145% to 10%, though still aggregating to around 50% due to stacking (according to the Petersen Institute)—has tempered immediate fears of a severe trade conflict. However, tariffs remain well above pre-April levels, keeping the sector on alert and reshaping demand dynamics across the industry.

While the temporary truce removes the sharpest downside risks, long-term uncertainty has grown. The tariffs have certainly added additional stress, but the root cause of this long-term uncertainty can be traced-back to the consumer. The average consumer is encountering mixed financial conditions. On one hand, wage growth (4.3%) is above the rate of inflation (2.4%), so discretionary income is growing and providing the consumer some added breathing room. This is a real positive for the consumer. On the other hand, the stress remains evident as a larger number of consumers are using Buy-Now, Pay-Later (BNPL) for lower cost, shorter duration items such as groceries. In addition, higher delinquency rates on BNPL, credit cards and student debt signal increased more financial tension for consumers. Many investors see this as part of a broader structural reset of the macroeconomic and geopolitical context shaping the U.S. economy and influencing commercial real estate (CRE). The growth in consumer uncertainty and the shift from multilateralism toward protectionism and bilateral industrial policy is forcing a recalibration of assumptions around inflation, growth, liquidity, and capital flows.

Collectively, consumer financial stress, tariffs, reshoring of U.S. manufacturing, supply chain reconfiguration, and greater domestic self-sufficiency are all influencing demand for CRE assets. While the consumer continues to experience financial headwinds, they continue to spend which in turn is driving healthy retail fundamentals. Despite significant focus on reconfiguring the supply chain, industrial conditions have been negatively impacted by tariffs and aggressive amounts of new construction delivered to the market over the last few years. Alternatively, stabilized multifamily housing, core central business district (CBD) offices, inland logistics hubs, and data centers are attracting more attention due to their insulation from global volatility and underwriting visibility. As geopolitical and trade risks move higher on the CRE due diligence checklists, investors are re-evaluating portfolio exposures and underwriting assumptions with greater scrutiny.

Inflation, rates and capital markets reset

Bond markets have served as one of the key indicators of investor concern as proposed tariffs created unexpected inflation risk and growth disruption. During peak trade tensions, yields plunged after 2-April – with the 10-year Treasury falling to 3.86% – as markets braced for a downturn in growth and earnings. The Federal Reserve, aware of the inflationary impulse of tariffs, paused planned monetary easing to wait for more data as events played out. By the announcement of the U.S.–China trade truce, the 10-year Treasury yield had rebounded to 4.46%, reflecting reduced recession fears and a partial unwind of the flight-to-safety trade. These yield swings show tariff volatility spilling into CRE capital costs, squeezing margins and reshaping underwriting.

More robust inflation pressures, greater uncertainty and a slowing employment environment continue to cloud monetary policy outlook. The University of Michigan’s Survey of Consumers showed that 12-month inflation expectations have grown to 7.3%. As a result of this information and other robust inflation data, markets have scaled back expectations for multiple Fed rate cuts in 2025. The consensus has shifted toward a slower, data-dependent decision cycle as economic and trade dynamics remain fluid. The macro environment continues to shape CRE refinancing decisions, asset repricing, and capital deployment, reinforcing the need for underwriting discipline and a focus on operational resilience and property cash flow.

Sector impacts: Divergences widen

The effects of the tariff changes are not uniform across sectors. According to the CRE Finance Council Sentiment Index, industry sentiment fell 30.5% in Q1 2025 – the second-largest drop on record – with expectations for worsening economic conditions, tighter market liquidity, and weaker CRE fundamentals all surging. Roughly 60% of respondents flagged trade policy and geopolitical tensions as top risks, while 60% also expressed concern about tariff-driven cost pressures on construction and development. Although the U.S.–China tariff truce may ease immediate fears, confidence will take time to fully recover. Capital deployment will remain shaped by selectivity and more rigorous underwriting.

Sector outlooks: Navigating volatility, resilience, and repricing

Logistics

The industrial sector remains a focal point of trade-related volatility, with divergent trends emerging between trade-exposed coastal hubs and more resilient inland markets. Tenants are delaying decisions or pursuing short-term renewals as they consider the longer-term implications of trade policy changes on supply chains.

Global shipping volumes continue to remain under pressure. According to Vizion, global shipping volumes declined markedly on a YoY% basis between 31-March and 21-May- 2025. Trade-heavy ports like Los Angeles and Long Beach – where Chinese imports account for around half of throughput – face strong tariff-induced demand headwinds, but this may now ease during the 90-day reprieve. Inland logistics hubs such as Dallas/Fort Worth and Phoenix continue to benefit from structural tailwinds tied to e-commerce, reshoring, and regional distribution. New construction ground-breakings hit a record low in Q1, according to JLL, underscoring capital discipline and construction risk aversion.

Multifamily

Overall the U.S. housing market continues to face a significant shortage of units. There is limited availability of single-family residential product. However, multifamily is encountering overbuilt conditions. While the rate of new supply is slowing, most markets continue to struggle to find equilibrium. To combat sluggish demand, owners are offering significant concessions to stimulate demand, which could add to the issue of future unaffordability.

The weakened fundamentals have caused multifamily CMBS delinquency rate surged to 6.57% in April, up 113 basis points from March and its highest level in a decade, according to Trepp. The rise was driven by more than USD one billion in newly delinquent loans, suggesting stress is building beneath the surface. Strong long-term fundamentals continue to support capital flows into the sector, but tightening household budgets and increased borrowing costs are creating pressure points in less affluent markets.

Offices

Despite deeply bifurcated fundamentals, U.S. office transaction volumes showed early signs of life in the first quarter. However, this modest uptick masks severe financial strain. The office CMBS delinquency rate climbed to 10.28% in April, up from 9.76% the prior month, according to Trepp data. Delinquency has now risen in four of the last five months, highlighting persistent stress in aging, non-core assets. Investor selectivity remains paramount, while lenders apply tighter covenants, lower loan-to-values (LTVs), and stricter coverage ratios on new originations.

Retail

Retail sector performance remains mixed, in part driven by greater consumer uncertainty. Net absorption turned negative for the first time in four years, as store closures picked up. According to Trepp, retail delinquency sits at 7.12%, still elevated compared to pre-pandemic norms, but down slightly from March, suggesting selective recovery. Markets with strong demographics, tourism, and income growth – such as Florida, Texas, and Southern California – continue to support footfall and retailer expansion. Prime locations with click-and-collect capability are gaining traction, but new supply remains limited.

Data centers

Investor confidence in long-term AI-driven demand remains high, but underwriting is growing more selective. Lenders are increasingly focused on structural risks such as lease rollover uncertainty, power availability constraints, rising construction costs, and limited exit liquidity for non-core assets. The recent pause in leasing by major hyperscalers (large-scale cloud-service providers) reflects a period of digestion rather than a drop in demand, but has increased scrutiny of absorption timelines and re-letting risk. Asset obsolescence and site-level clean energy limitations are also contributing to tighter financing terms. Capital is still flowing into the sector, but increasingly toward infrastructure-backed schemes with hyperscaler tenancy.

Underwriting recalibration

Across all sectors, underwriting assumptions are tightening modestly. Sponsors are pausing speculative developments, with feasibility reassessed around pricing power, especially in light of record-low groundbreakings and rising costs. Developers are prioritizing pre-leased or forward-funded structures to reduce pricing and financing risks. While stabilized assets remain broadly financeable, projects tied to consumer demand or cross-border trade face greater refinancing risk and may turn to bridge, mezzanine, and preferred equity.

Credit terms are stricter for trade-exposed logistics and retail. However, assets focused on reshoring and multifamily portfolios in high-growth submarkets remain financeable. Office underwriting continues to bifurcate, with lender scrutiny focused on rollover risk, tenant credit, and capex requirements. Rising multifamily delinquency has prompted tighter loan structures and more conservative rent growth assumptions.

For lenders, credit risk assessments are tightening around assets exposed to policy volatility and trade-sensitive hubs. Lenders are prioritizing experienced sponsors and projects with durable income visibility.

Conclusion

The recalibration of commercial real estate risk will continue to evolve as consumer financial stress, tariff impacts, monetary policy signals, and geopolitical tensions reshape fundamentals. While the 90-day U.S.–China truce has removed the most severe downside risks, volatility in trade policy and rates continues to constrain investor confidence. CRE markets remain defined by selective capital, a wider spread between prime and secondary asset pricing, and lasting shifts in how deals are underwritten.

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