What's Happening?
Cushman & Wakefield has released a new analysis indicating that U.S. trade policies are significantly affecting the commercial real estate construction sector. The report highlights that tariffs on imported building materials are expected to increase construction materials costs by an average of 9% in 2025. This rise in material costs is projected to lead to a 4.6% increase in total project costs in the fourth quarter of 2025 compared to the same period in 2024. The analysis points out that metals such as steel, aluminum, and copper are experiencing the steepest cost increases, with copper-intensive projects like data centers being particularly affected. The report also notes that approximately 40% of construction materials are imported, with Canada, Mexico, and the EU being the largest sources.
Why It's Important?
The increase in construction costs due to tariffs has significant implications for the commercial real estate sector. Developers, contractors, and tenants are likely to absorb most of these costs, as the tariff pass-through to end-users is estimated at 75%. This situation adds another layer of complexity to an already challenging environment marked by high interest rates and cautious lending. The inability of domestic production to meet demand for key materials like copper and aluminum further exacerbates the issue. As a result, stakeholders in the construction industry may face increased financial pressure, potentially leading to delays or cancellations of projects. This could have a ripple effect on the broader economy, affecting job creation and economic growth.
What's Next?
Cushman & Wakefield advises developers to adopt proactive strategies to mitigate the impact of rising costs. These strategies include diversifying procurement channels, considering prefabricated systems, and engaging project management experts to manage cost overruns. The firm also emphasizes the need for developers to plan strategically and build flexibility into project underwriting to navigate the volatile pricing environment. As trade policy uncertainty continues to pose challenges, stakeholders in the construction industry will need to remain vigilant and adaptable to manage risks effectively.
