Why CRE Fundamentals Are Poised To Improve
Recent federal policies are poised to constrain new commercial real estate (CRE) development. Tariffs of 50% on materials such as steel, aluminum, and copper are expected to significantly raise construction input costs, while stricter immigration enforcement may reduce labor availability and drive up wages. These headwinds arrive amid an ongoing slowdown in development activity—apartment starts have declined 77% from their 2022 peak, with the number of units under construction down 51%. Retail and industrial construction spending have fallen 28% and 35%, respectively, since Q3 2023.
This contraction in supply may ultimately support CRE values over the long term. As new development continues to decelerate, a growing supply-demand imbalance could drive income growth across property sectors. Investors positioned to take advantage of this trend may benefit as the tightening pipeline bolsters asset performance.
The forces slowing CRE construction and why they will be persistent
The opportunities that limited new supply creates for CRE investors
How investors can capitalize on the long-term CRE performance outlook
Sources: Marcus & Millichap Research Services, BLS
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