Lowery Property Advisors

Southwest Commercial Real Estate Appraisal Company

Newsworthy

Posted on March 27, 2025

Navigating the Impact of Tariffs on the Commercial Real Estate Market

Tariffs have become a defining factor in the commercial real estate market, creating both immediate challenges and long-term opportunities for stakeholders. From rising construction costs to shifting demand for industrial spaces, these changes require strategic planning and expert guidance. LPA (Lowery Property Advisors) has been providing that expertise as a trusted partner in commercial real estate appraisal for 15 years.  We deliver actionable insights to help real estate investors, property owners, and organizations manage market changes with confidence and make informed financial decisions. As tariffs begin to impact the market even more, our Team is poised to face what lies ahead.   

Immediate Impacts: Rising Costs and Project Delays 

The introduction of tariffs on imported materials, such as the 25% tariff on metals and lumber, has created ripple effects across the CRE sector. These tariffs have driven up construction costs and disrupted project timelines, creating immediate challenges for developers and property owners. 

Higher Construction Costs 

Tariffs have significantly increased the cost of construction materials, forcing developers to reevaluate budgets and timelines. According to the National Association of Home Builders (NAHB), building material costs have risen by 34% since December 2020, with tariffs on steel, aluminum, and lumber driving much of this increase. These rising costs have led to widespread budget overruns and delays across the Southwest. For example: 

  • A 2025 report from the Bureau of Labor Statistics found that February construction input prices rose by 0.6%, with sharp spikes in steel and lumber due to domestic producers leveraging tariffs to increase pricing power 

Supply Chain Disruptions 

Tariff-induced supply chain disruptions are creating significant delays for construction projects across the U.S., particularly for those reliant on imported materials. Developers are facing longer lead times and rising costs as they scramble to source alternatives, with some projects forced to pause entirely. These disruptions are especially challenging for large-scale developments such as mixed-use projects and industrial facilities. For example: 

  • The newly implemented 25% tariffs on steel and aluminum imports have caused delays in sourcing structural components, with some suppliers reporting lead times of up to 12 months, according to Construction Dive. 
  • Dodge Construction Network reported that nonresidential projects valued between $20–$500 million are now taking an average of 6.5 months longer to move through planning stages compared to pre-pandemic timelines, exacerbated by tariff-related material shortages. 

Financing Challenges 

Rising construction costs and economic uncertainty are compounding financing challenges for CRE projects. Inflation moderated to 2.8% in February 2025, but interest rates remain elevated, with the Federal Reserve expecting to hold the federal funds rate at 4.25%-4.50% during their March 19th meeting. Higher borrowing costs have tightened lending conditions, forcing developers to navigate slimmer margins and increased scrutiny from lenders. 

Office developments have been particularly affected by these challenges. For example: 

  • A 2025 report from NAIOP highlights that refinancing has become increasingly difficult for office properties, as rising interest rates have caused debt service payments to increase by 75%-100%, making new project initiations less viable. 

Long-Term Opportunities: Reshoring and Industrial Growth 

While tariffs create short-term challenges, they are also catalyzing long-term shifts that present opportunities for savvy investors and property owners. One of the most significant trends is the reshoring of manufacturing operations back to the United States, which is driving demand for industrial real estate and fostering domestic economic growth. 

Domestic Manufacturing Growth 

Tariffs on imported goods have incentivized manufacturers to reduce reliance on foreign supply chains by expanding domestic production. This trend is reshaping demand for industrial spaces such as warehouses, logistics hubs, and manufacturing facilities. For example: 

  • Construction spending on U.S. manufacturing plants reached a record $238 billion in 2024, reflecting significant investment in domestic production capacity. 

This reshoring trend is particularly evident in regions with strong infrastructure and access to transportation networks: 

Logistics Boom 

The logistics sector is experiencing robust growth as companies prioritize domestic supply chains over international ones. National demand for warehousing and distribution services remains steady: 

 

Suburban markets like Frisco are emerging as hotspots for industrial lease growth due to affordable land prices and proximity to major transportation routes. For investors looking to capitalize on this trend, these markets offer promising opportunities. 

 

Adapting Through Technology and Sustainability 

The shift toward domestic production is driving innovation in CRE development as developers seek ways to optimize efficiency while meeting evolving market demands. 

Technology Investments 

Manufacturers are increasingly investing in technology to streamline operations and enhance competitiveness. Deloitte reports that technology expenditures accounted for 30% of manufacturers’ operating budgets in 2024, up from 23% in 2023, with cloud computing, AI, and extended reality leading the way. 

 This trend is driving demand for modernized facilities such as flex spaces, properties that combine office functionality with research and development (R&D) capabilities. As manufacturers prioritize innovation, CRE stakeholders who invest in properties equipped with advanced technology infrastructure can unlock long-term value while attracting tenants seeking state-of-the-art facilities. 

Sustainability Practices 

Sustainability is taking center stage as builders adapt to tariff-driven cost pressures and shifting market demands: 

  • Eco-friendly materials like recycled steel and locally sourced lumber are becoming more prevalent as developers seek to reduce carbon footprints and long-term costs while meeting tenant expectations for sustainable practices. 

By prioritizing energy-efficient designs and sustainable materials, developers can not only mitigate rising costs but also position themselves as leaders in environmentally responsible construction. 

 

Regional Advantages: Spotlight on the Southwest 

The Southwest region, particularly Texas, Oklahoma, Arkansas, and New Mexico, is uniquely positioned to capitalize on these trends due to its strong population growth, business-friendly environment, and strategic location advantages. 

Population Growth Fuels Demand 

Texas’s population grew by 1.6% in 2024 alone, further boosting demand for commercial real estate across sectors such as industrial spaces, retail developments, and mixed-use properties. Suburban markets like Frisco and Bentonville are attracting industrial developments thanks to their proximity to major transportation routes and lower land costs. 

Strategic Location Benefits 

The Southwest’s central location makes it a natural hub for logistics operations: 

  • Major highways like I-35 connect key markets across Texas and beyond. 
  • Ports such as Houston’s Port Authority provide critical access points for domestic trade. 

 These factors make the region an attractive destination for businesses seeking cost-effective solutions amid tariff-related pressures. 

Strategic Guidance for CRE Stakeholders 

Navigating the impacts of tariffs requires careful planning and informed decision-making. Whether you’re managing rising construction costs or exploring opportunities in industrial growth, having access to accurate data and expert analysis can make all the difference. 

At LPA, we specialize in providing tailored solutions for real estate investors, lenders, property owners, and organizations across the Southwest and beyond. Our services include: 

  • Commercial Appraisals – delivering accurate valuations backed by advanced analytics. 
  • Eminent Domain/Right-of-Way Consulting – guiding stakeholders through complex property acquisition processes. 
  • Tax Consulting – helping clients optimize their tax strategies amid changing market conditions. 

With our extensive regional experience and commitment to reducing appraisal turnaround times and providing on-time delivery, we empower our clients with the insights they need to succeed. 

In summary, tariffs are reshaping the commercial real estate landscape across the country. Although rising costs and delays pose immediate challenges for stakeholders, long-term trends like reshoring manufacturing operations, logistics growth, technology investments, and sustainability practices offer promising avenues for investment. 

By staying agile and partnering with commercial real estate valuation experts like the Team at LPA, CRE stakeholders can manage these changes effectively and position themselves for success in a rapidly evolving market. Contact us today for expert guidance on navigating tariff impacts or any other challenges facing your commercial real estate investments. 

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