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While it’s too soon to know exactly how tariffs will impact the commercial real estate market, some early cracks are emerging in the retail and industrial sectors, according to Whitley Collins of CBRE, the commercial real estate services company. 

“If you just look at the tariffs…the biggest impact is on retailers and then the knock-on effect, is in manufacturing and distribution, so retailers for sure are the ones bracing the most,” said Collins, global president, advisory and transaction services, occupiers for CBRE said in an interview last week. “Retail is trying to figure out, ‘what’s it going to mean for our business,’ so there’s a lot of pausing right now on retail transactions and similarly with industrial.” 

In Q1, the retail real estate sector that includes malls, big box stores and power centers in the U.S. market saw its first quarterly period in which the net absorption of space turned negative since early in the pandemic in Q3 2020, according to CBRE’s Q1 retail report. The shift reflected “a cautious start to the year as retailers reconsidered expansion plans amid economic uncertainty.”    

Many industrial warehouse tenants are also taking a “wait-and-see” approach to making industrial real estate decisions and the widespread tariffs are expected to have “a significant impact on market activity,” according to CBRE’s Q1 report on the industrial market. At the same time, the overall U.S. industrial real estate market’s vacancy rate rose to 6.3%, the highest since Q2 2014, or just over a decade.  

In contrast, Collins has seen only a little bit of pausing in the office market and not directly because of tariffs. For example, he said there were a couple deals in the Washington D.C. area where tenants said they were concerned about the cost of constructing new space, given that the cost of furniture, fixtures and equipment is uncertain. Contractors and furniture manufacturers were not able to lock in prices and so the deals’ costs could have gone up 10% to 15%, Collins said. 

“If you think about that, that’s only a small piece of the overall transaction but it’s material enough that they said, ‘ok, until we can get more clarity around the price we want to hit the pause,’” Collins said. “It wasn’t the pause we’re seeing in retail and industrial where, ‘we’re pausing because this is going to have a dramatic effect on our business.’”