The Trump administration’s shifting tariff policy is prompting logistics companies and some related businesses to hit pause on expansion for industrial real estate, threatening the bottom lines of landlords, developers and brokers.
Warehouse owners including Prologis, First Industrial Realty Trust and Rexford Industrial, and global real estate brokerage Colliers, said tenants began delaying decisions on new leases after what had been a strong start in the first few weeks of the year.
President Donald Trump's initial announcement of sweeping tariffs on April 2 led to large swings in financial markets and contributed to a sharp decline in deal activity as landlords and their customers try to assess how the policies would affect operations. Even as some of those levies were later paused, the uncertainty is still causing potential buyers and renters of industrial real estate to tell their brokers they are holding off.
"At the beginning of the quarter, we were excited that things were stabilizing" for commercial real estate, including industrial property, Colliers CEO Jay Hennick told investors this week during the brokerage's latest earnings call. "Then, of course, all this tariff stuff started. All of a sudden, transactions that were close to closing — had financing tied up and a variety of other things — just were put on delay."
The nation’s gross domestic product, a key measure of economic expansion, declined in the first quarter after 11 straight quarters of growth. Analysts cited uncertainty over trade tariffs and their potential effects on inflation as factors. Recession risks remain high as the disruptions could paralyze investment, reduce hiring and increase layoffs, Ryan Sweet, chief U.S. economist at Oxford Economics, said in a statement.
The volatility has hammered investor returns on publicly traded real estate investment trusts, with warehouse and logistics-focused trusts taking the hardest hit.
“We are all operating in unfamiliar territory, and whether we like it or not, we're being included in the geopolitical and economic sausage-making," Peter Baccile, CEO of Chicago-based warehouse developer First Industrial Realty Trust, said during an earnings call. "We have ringside seats to what looks to be an ongoing and volatile negotiation with our international trading partners."
Despite the uncertainty, there's no guarantee that it won't ease as trade negotiations proceed. News of a trade deal on Thursday between the United States and the United Kingdom prompted the Dow Jones Industrial Average to rise, showing that some actions on tariffs can cause concern to ease.
Investor concern
Even so, investors appear to already have been disturbed. The FTSE Nareit All Equity REITs stock index fell an average of more than 9% from April 2 to April 30 — the largest decline among the major commercial property types, according to an analysis by the National Association of Real Estate Investment Trusts trade group, also known as NAREIT.
That was a bigger drop than for stock indexes for office REITs, with a 6.9% decline, hospitality trusts' 6.3% slide and the decrease of about 3% for retail REITs.
U.S. industrial leasing picked up prior to the tariff disruptions, according to CoStar’s national industrial report. Warehouse deal volume increased more than 50% in the first quarter above prior two-year averages in such cities as St. Louis, Richmond, Virginia, Nashville, Tennessee, and Charlotte, North Carolina, according to the report.
Southern California-based Rexford Industrial Realty reported that at the time of its earnings call in February, tenants had shown interest in about 90% of its vacant space, a significant pickup from last year.
But the Trump administration announcement April 2 of a universal 10% tariff on all imports and "reciprocal" tariffs on dozens of countries deemed by the White House to be "trade offenders," including a 145% tariff on China, led to changes for Rexford, the industrial REIT said.
The company has “seen some tenants defer decision making amid increased economic uncertainty,” Chief Operating Officer Laura Clark said during its earnings call in the past month. "It is difficult to predict the near-term impacts surrounding the tariffs,” Clark added.
The White House and Commerce Department did not respond to requests from CoStar News to comment.
Port shipments decline
Up to two-thirds of the container traffic through the ports of Long Beach and Los Angeles — among the world's busiest port complexes — comes from China, according to port data. Cargo container volume was down 35% at the Port of Los Angeles in the past week when compared with the same week last year, officials said.
"The recession will start on the docks of Los Angeles," Joseph Brusuelas, chief economist for international accounting firm RSM, said in a blog post on Tuesday. "The price of those policies will be first paid at the ports and then spread to the rest of the economy."
Port of Seattle Commissioner Ryan Calkins told reporters that “you've got warehouses and logistics operations that are functioning based on the volumes at the ports, so [the slowdown] will ripple through the whole economy in our port communities.”
He added that cargo is expected to drop 35% at Washington ports in May.
In Southern California, Prologis — the world's biggest warehouse owner and developer — owns over 500 buildings with a total of more than 120 million square feet, according to its website. The firm said leasing activity fell roughly 20% in the first two weeks of April, preventing the firm from issuing a more optimistic growth forecast.
Industrial developers said higher tariffs could drive up the price of building materials such as steel, aluminum and lumber, increasing construction and other project costs.
Spending cut
Prologis cut its guidance for speculative construction spending this year in its $41.5 billion development pipeline amid tariff uncertainty.
The San Francisco-based industrial giant in January expected to spend between $2.25 billion and $2.75 billion on development starts for 2025. Last month, though, Prologis cut that range to between $1.5 billion and $2 billion, reflecting "a reduction in our expectations for spec development until visibility improves,” CEO Tim Arndt said.
Projects in such cities as Los Angeles and San Francisco, where development costs are already high, are especially vulnerable to increased tariffs, according to Sonnet Hui, vice president and managing director for the Los Angeles office of Chicago-based Project Management Advisors.
"Rising prices for imported construction materials could further strain project feasibility, leading to delays or scaled-back developments," Hui said in an email.