Real Estate
U.S. Real Estate: Tariffs Test the Recovery
The U.S. real estate market held steady in the first quarter as solid underlying fundamentals provide a foothold for rising tariff headwinds.
Executive Summary
ECONOMY
- The U.S. economy has entered this period of higher-than-expected tariffs from a favorable position with a solid labor market and generally sound household and business balance sheets.
- Markets have been volatile and repriced risk but are functioning with some improvement since the initial tariff shock.
- The duration and severity of tariffs—with paths still available to de-escalate and lower tensions—will test the strength of the economy’s underlying fundamentals.
PROPERTY MARKETS
- The U.S. commercial real estate recovery held steady in the first quarter and was supported by slower development activity with greater barriers to new supply. However, economic concerns slowed tenant demand with lower absorption for all property sectors outside of multifamily during the quarter.
- CRE valuations—which have reset in recent years—were relatively unchanged in the first quarter of 2025 based on transaction cap rates and commercial property price indices. Meanwhile, transaction activity was slowed by market volatility and economic concerns.
- Public REITs have outperformed the broader U.S. equity market to-date—a positive sign for private real estate markets— supported by the cash flow and physical nature of the asset class.
