CBRE: Tariffs Could Drive Construction Costs Up 5%, Put Projects On Hold
As tariffs on key materials tighten their grip on U.S. trade, the rising cost of construction threatens to put commercial real estate projects on ice.
The Trump administration imposed 25% tariffs on all steel and aluminum imports and most Mexican and Canadian imports in mid-March.
The move is expected to drive up construction costs for commercial real estate by 3% to 5%, which could tighten supply and delay projects for developers, according to a CBRE analysis published Wednesday that includes internal analysis from Trammell Crow's project work.
The wild swings in tariff policy and accompanying shifts in materials pricing are making it difficult for contractors to bid on projects and price in risk.
CBRE's analysis says the automotive and construction industries would be particularly affected by the tariffs.
The impact varies across industries. While demand for industrial and retail space is expected to be the most negatively affected the most quickly, development costs for industrial may be less affected than multifamily projects due to different equipment and material requirements, CBRE said.
While higher costs are expected to delay development, CBRE said delays could help demand catch up with the recent surge in supply for the multifamily sector.
The U.S. multifamily market had a record delivery of 450,400 units, an 8% increase from 2023, but net absorption in the industry increased 13% quarter-over-quarter and 118% year-over-year, according to a fourth-quarter CBRE report.
The 2024 absorption in multifamily is the highest on record and is 12 times more than the prepandemic Q4 average.
President Donald Trump has said his tariffs are in part intended to spur domestic manufacturing of products.
After about three to five years, tariffs may add roughly 400,000 domestic manufacturing jobs, but that doesn't account for the manufacturing jobs lost due to lower exports caused by retaliatory tariffs such as the ones already levied by Canada, according to CBRE.
Trump has operated from this playbook before, to construction's detriment. In 2018, he imposed a 25% tariff on steel and a 10% tariff on aluminum imports, and while domestic steel production increased by 6 million tons, the construction industry faced higher input costs and slower growth, according to a Dodge Construction Network analysis of a study done by the Federal Reserve in 2019.
And the expanded scope of current tariffs increases the risk that construction projects in the planning stages could face further delays or cancellations. This is due to owners and developers growing concerned about uncertain pricing and potential supply chain disruptions, Dodge said.
“There are increased prices, potential delays, and just the threat of more tariffs creates havoc,” Associated General Contractors Senior Counsel for Construction Law and Contracts Brian Perlberg told Bisnow this week.
In 2024, nearly 30% of the steel consumed in the U.S. came from imports. Additionally, the share of imports from countries with special trade agreements with the U.S., like Canada and Mexico, rose to 82% of the total steel imports, compared to 74% in 2018, according to the White House website.
Canada supplies approximately 30% of the softwood lumber used in the U.S., making it the country's largest trading partner for the material. The price of vital construction material had already risen leading up to this wave of tariffs, which caused U.S. lumber to spike to almost $700 at the beginning of March.
In a Wednesday press conference, Fed Chair Jerome Powell acknowledged that tariffs have started impacting inflation but suggested the price increases may be temporary, with long-term inflation expectations remaining stable.
