Tariffs on incoming Canadian products can be expected to accentuate differences within the commercial real estate sector in the United States. Landlords of existing multifamily buildings could realize some business benefits, provided they’re not spending on capital upgrades, but developers should expect escalating costs. As well, financing could get more expensive for everyone if tariff-related inflation drives up interest rates as projected.

“Tariffs are one of the news items every investor will want to monitor,” John Chang, a national director with Marcus & Millichap real estate investment services in the U.S., observes in a newly released online commentary. “While tariffs themselves will have little direct effect on most types of commercial real estate, the indirect impact is more significant — increased construction costs, a slowing economy, higher inflation and higher interest rates would all weigh on the sector.”

Builders specializing in wood frame low-rise are likely in line for the biggest hit since roughly 25 per cent of the lumber used in U.S. construction projects is imported from Canada. Canada is also the source of 9 per cent of the copper for U.S. construction; Canada and Mexico together account for more than 8 per cent of the cement; and Canada, Mexico and China combined provide more than 9 per cent of steel.

In total, it’s estimated that the threatened 25 per cent tariffs on in-bound Canadian and Mexican products along with the new 10 per cent tariff on Chinese imports will almost immediately translate to a 7.5 per cent premium on construction materials. That’s happening in a market that’s already experiencing a slowdown in housing starts and rising concerns about affordability.

“When a 7.5 per cent bump in material costs is combined with rising labour costs, rising debt capital costs and other construction headwinds, it could drive housing construction down even more,” Chang speculates. “For existing multifamily owners, adding even more headwinds on new housing supply would put downward pressure on vacancy rates, leading to rising rents.”

Aside from generally escalating operating and capital costs, tariffs are not expected to have much ripple effect in the office sector. The retail and warehouse sectors are somewhat more exposed due to either rising costs of merchandise or a reduction in consumer spending that could affect the demand for space, but that’s not expected to filter through in the short term.

Across the broader U.S. economy, economists estimate that the threatened tariffs would hold growth to within the range 0.7 to 1.8 per cent — a pullback from the 2.2 per cent growth rate that had been envisioned for 2025. Tariffs are also expected to push inflation up by 0.5 per cent, taking it above 3 per cent and making the Federal Reserve less inclined to lower interest rates. Some economists also foresee a jump in the 10-year treasury yield of up to 50 basis points.

“That would certainly impact commercial real estate lending,” Chang says.