The tariff situation is likely to be fluid over the coming year, and that will create elevated uncertainty for businesses, consumers and investors over a prolonged period, making decision-making more difficult, said John Chang, national director of research and advisory services at Marcus & Millichap.
Just in the past couple of weeks, the stock market tumbled on President Trump’s Liberation Day tariff announcement, and the 10-year Treasury fell from about 4.2% to below 4% and then climbed to 4.4%. Since then, most countries other than China have been given a 90-day tariff reprieve, but the average effective tariff rate consumers face is now 27%, the highest since 1903, said Chang. Tariffs on China have escalated to 145%, and a 25% tariff remains on auto, steel and aluminum, while it appears the tariff on Canadian softwood lumber will be about 34%.
“While the 90-day reprieve on tariffs is likely better than where we were prior to April 9, we're still a long way from the two-and-a-half percent effective tariff rate we were at a month ago,” said Chang. “And I think the policies could change with little notice at any time this year.”
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Amid the stock market roller coaster, volatility in the bond market, rising risk of recession and the prospect of higher inflation, investors are pausing to figure out where they can best invest their capital, he said. But real estate may prove to be one of the most durable and stable investment options amid headwinds this year.
“What investment class has relatively low volatility?” asked Chang. “What investment offers recession resistance? What investment has some level of inflation resistance?”
The answer to the question is real estate, according to Chang.
Marcus & Millichap's preliminary first-quarter data shows apartment vacancy rates falling by about 10 basis points, even as completions remain elevated. Office vacancy rates also declined by about 10 basis points, retail vacancy rates appear to have held firm, and industrial vacancy rates may have risen by about 10 basis points. Things appear to look stable.
“It looks like commercial real estate is entering the cycle of uncertainty with structurally sound footing,” said Chang. “At the same time, interest rate volatility could open unique financing opportunities, but investors will need to be in position and ready to pull the trigger on short notice to fully capitalize on narrow windows of opportunity should Treasury rates fall again.”
Chang also reminded investors that tax provisions that favor real estate are still in the works with the potential renewal of many facets of the 2017 Tax Cuts and Jobs Act.
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Kristen Smithberg
Kristen Smithberg is a Colorado-based freelance writer who covers commercial real estate, insurance, benefits and retirement topics for BenefitsPRO and other industry publications.
