The Trump administration’s tariffs and “shifting policy mix” creating market volatility will negatively affect the U.S. economy and the commercial real estate industry, according to S&P Global Ratings.
The firm expects real GDP growth to cool to 1.9% in 2025 and 2026, down from 2.9% in 2023 and 2.8% in 2024.
That is more upbeat than the median projections by the Federal Reserve Board members and Federal Reserve Bank presidents in March 2025. They expect 1.7% in 2025 and 1.8% in 2026, 2027, and the longer run. The range of individual estimates was from 1.5% to 1.9% in 2025, 1.6% to 1.9% in 2026, 1.6% to 2.0% in 2027, and 1.7% to 2.0% in the longer run.
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S&P Global expects inflation to remain closer to 3% in 2025, given the impact of tariffs on prices throughout the domestic supply chain and for end consumers. That differs slightly from the Fed’s projection of 2.7% Personal Consumption Expenditures (PCE) inflation in 2025 and core PCE inflation (without food or energy factored in) of 2.8%. S&P Global didn’t indicate whether it used PCE or Consumer Price Index (CPI) figures. The two can differ in timing on certain elements, so they can show different inflation measurements.
The Fed did indicate a drop in core PCE inflation to 2.2% in 2026 and 2% in 2027.
S&P Global included the 25% tariffs on steel and aluminum, which would continue, as well as the current tariffs on Chinese imports, which increased by 20 percentage points by the Trump administration, to become an effective tariff rate of someone above 30%. The firm also assumed a 10% effective tariff rate on imports from Mexico and Canada until it revert to 0% after the United States-Mexico-Canada Agreement (USMCA) re-ratification.
Tariffs are likely to have a larger impact on building materials and homebuilding sectors because of exposure to lumber, steel, aluminum, and gypsum and finished products such as cabinets and appliances. These materials are also used in commercial construction, so they will likely impact various CRE sectors.
The National Association of Homebuilders estimated that $184 billion in goods were used in housing construction in 2023. About $13 billion, or 7%, was imported from outside the U.S. Canada and Mexico accounted for about 25% of the imports. China accounts for a “significant amount.” Higher costs will add to margin pressure.
The effects of tariffs on building materials have already been seen in lumber prices, which have seen their highest levels since the pandemic. According to Michael Goodman, president of Sherwood Lumber, “It’s a mix of seasonal demand strength and concerns over tariffs.”
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