The real estate and property management industries are intricately linked to global economic trends, and tariffs remain one of the most impactful yet unpredictable levers shaping these sectors. While tariffs are often positioned as tools for protecting domestic industries, their downstream consequences can ripple through housing markets, construction industries, and even property management firms.
Looking ahead to 2025, we will examine how tariffs are likely to affect real estate and property management. By considering past examples, expert forecasts, and current economic trends, we’ll gain insight into how businesses can prepare for these challenges.
Tariffs and Current Economic Trends
Three primary economic factors are poised to influence how tariffs impact real estate in 2025:
- Inflation:
Tariffs inherently drive up the cost of imported goods, which feeds directly into inflation. Higher prices for construction materials such as steel, aluminum, and lumber increase development costs, making housing construction more expensive. This trend often leads to higher property prices and rents, putting additional pressure on affordability for tenants and homeowners alike.
- Supply Chain Disruptions:
Global supply chain constraints, which emerged during the pandemic, have not fully resolved. Tariffs placed on key imports have the potential to exacerbate these bottlenecks, delaying construction timelines further and driving up costs on tightly limited supplies. The ripple effects can trickle into property investment decisions and rental markets.
- Interest Rate Hikes:
Central banks have increased interest rates to combat inflation, but higher interest rates also mean more expensive borrowing for real estate development. When coupled with tariff-driven increases in material costs, many developers may pause or cancel planned projects. Slowly rising inventories could then strain property management firms by limiting new opportunities within their portfolios.
What We’ve Learned from the Past
To predict the future, it’s essential to learn from the past. Here are a few historical examples of how tariffs disrupted real estate industries:
- 2018 Steel and Aluminum Tariffs:
The Trump administration's tariffs on steel and aluminum imports caused construction costs to surge. Developers faced prohibitive budgets, resulting in delays and cancellations, particularly in the multifamily sector. Affordable housing projects were especially impacted, as these rely on razor-thin margins.
- The Effect on Housing Starts:
The National Association of Realtors reported a direct link between import duties on construction materials and a slowdown in housing starts. Reduced supply in housing markets inevitably led to higher home prices and rents.
- Canadian Softwood Lumber Disputes:
Homes in the US rely heavily on Canadian lumber. Trade disputes saddled lumber with tariffs, driving up homebuilding costs. Contractors and developers passed these costs onto buyers, worsening the affordability crisis.
- Foreign Investment Declines:
Past trade disputes diminished foreign direct investment in US commercial real estate. A downturn in Chinese investment, in particular, had significant repercussions for high-end urban markets like New York City and San Francisco.
These case studies demonstrate a clear pattern of how tariffs can disrupt the delicate balance of supply, demand, and affordability in real estate markets.
What Experts Foresee in 2025
While past examples provide guidance, experts are also looking toward new dynamics for how tariffs will shape the industry in the coming years. Here's what industry analysts predict:
- Rising Costs, Higher Rents:
Tariff-driven increases in material costs are expected to elevate development budgets, which will likely push property prices and rents higher. Renters, in particular, could face significant hardship as property managers attempt to recoup rising expenses.
- A Shift Toward Local Sourcing:
To mitigate the costs associated with tariffs, many developers may turn to domestic suppliers. While this could spur growth in local manufacturing economies, it may also limit variety and flexibility, ultimately being another factor slowly increasing costs.
- Decreased Foreign Investment:
Tariffs, combined with ongoing geopolitical tensions, may cause foreign investors to hesitate before entering US real estate markets. This could impact urban commercial spaces heavily reliant on international capital, such as office buildings, luxury residential units, and hospitality properties.
- Industrial Real Estate Expansion:
An area of potential growth is industrial real estate. With trends like reshoring (bringing manufacturing back to domestic soil) becoming more prominent, the demand for factories, warehouses, and logistics hubs could rise significantly. Property managers may find new opportunities within this sector.
What This Means for Property Management
If tariffs lead to higher rents and property values, property managers may need to adapt quickly. Key action points might include:
- Transparent Communication:
Property managers will need to communicate clearly with occupants, explaining how rising tariffs are impacting rent adjustments.
- Operational Efficiency:
With constrained budgets, adopting technology to streamline property management tasks will be essential to maintain profitability.
- Exploring Niche Markets:
With sectors like industrial real estate set to expand, property managers can diversify portfolios to leverage these growth opportunities.
- Investing in Sustainable Solutions:
Domestic sourcing of materials may lead developers to seek sustainable alternatives. Property managers can capitalize on this by positioning properties as environmentally friendly, attracting eco-conscious tenants.
Preparing for a Tariff-Touched Future
Although tariffs create undeniable challenges, they can also inspire innovation and strategic thinking. Both the real estate and property management industries are known for resilience and adaptability in the face of economic uncertainty. By analyzing past data and adapting to future trends, businesses that plan ahead can not only endure, but also thrive, in the complex tariff and economic landscape of 2025.
For property managers, this means staying informed about global trade policies, preparing for rising costs, and working closely with tenants and development partners to navigate these changes collaboratively. Ultimately, businesses that can balance short-term adaptations with long-term resilience will turn challenges into opportunities.
