Tracking the Impact of Tariffs

The recent headlines have left little doubt that the new administration is re-shaping economic policy on a near-daily basis. Regardless of your specific positions on the merits of tariffs and negotiating with foreign interests, the ramifications at home are significant. In the commercial real estate industry, we’ve been monitoring how tariffs and the mere threat of tariffs is affecting the Boston market, which has a particular impact on occupiers in the industrial segment.

At the absolute minimum, tariffs cause uncertainty in almost any marketplace. Even in the early stages of the administration, tariffs and the proposed impact on trade partners have been implemented, rescinded, and adjusted a few times. While it’s certainly part of a negotiating strategy, it can cause businesses to put the brakes on hiring, expanding, or looking to lease new space.

The Implications on Industrial

While retail is one industry that almost always feels the pinch when consumers begin to sit on their hands, it also has a profound impact on industrial market tenants. These occupiers may pause making large-scale investments in new space, especially if looking for increased footprint or closer proximity to major transit routes where prices tend to go up. In addition, businesses that typically stockpile consumer goods for distribution via platforms like Amazon and that utilize warehouse space may also pull back on plans to expand, especially if inventory runs down while tariffs on Chinese-made products remain in place.

One bright spot in the industrial market may be among third-party logistics services that will likely see steady demand as larger entities continue to rely on them amid market uncertainty. Regardless of short-term impacts, industrial properties in the northern section of Routes 128 and 495 will likely remain popular destinations for tenants seeking locations with proximity to a talented workforce and convenient shipping routes.

Downtown Markets Remain Steady

At this point, there are plenty of reasons to remain optimistic about Boston’s downtown market. For tenants making moves to desirable Class A space thanks to favorable leasing conditions, the threat of tariffs likely won’t prevent landlords from making deals for the right occupier. As noted in Cresa’s market insight reports focused on the downtown Boston segment, while vacancy rates have pushed higher, there’s still ample opportunity for tenants to downsize and consolidate space in a desirable high- or mid-rise Class A building that may have previously been out of reach.

When considering the implications of tariffs, it’s important to remember that zip codes matter - and that Boston, Cambridge, and the nearby suburbs are impacted much differently than other major metros. For instance, the West Coast ports, which receive the majority of US-bound, Chinese-made goods, will face far more volatility than other major domestic ports of entry. Similarly, tariffs on Canadian-made goods which tend to flow towards the center of the country via Detroit will cause more upheaval in the Rust Belt than the broader New England economy.

A Continued Case for Optimism

Last but not least, it’s important to note that the downtown Boston market will likely remain strong due to forces that bear little correlation to tariffs, such as the uptick in return to office mandates and the aforementioned opportunity to increase the quality of an organization's workplace without increasing costs. While consumer retirement accounts may bear the brunt of financial impacts stemming from an unpredictable trade war, cautious optimism will continue to persist in Boston and beyond.

For more insights into major occupier markets across Boston and the neighboring suburbs, be sure to read our latest Market Insights reports.