June 4, 2025 | Ella Krygiel, BOMA International
Robust industrial and retail demand helped propel the U.S. net-lease investment market to continued recovery during the first quarter of this year, GlobeSt reports. This benefit is significant, considering that the industrial leasing boom that characterized the pandemic era has tapered off. According to the NAOIP Q1 2025 Industrial Space Demand Forecast, they provide more detail for why strong retail and wholesale demand continues:
“Despite a softening industrial market, consumer spending remained resilient. Retail sales (excluding auto sales) rose 2.9% year-over-year, and wholesale and retail inventories increased by 2.5%. However, industrial space occupiers appear to be hesitant about committing to additional space, likely due to continued high interest rates and economic uncertainty.”
Economic uncertainty continues to dominate discussions, with tariffs remaining a key concern. Although President Trump has postponed the implementation of E.U. tariffs to July 9, the effects of existing levies on Canada, Mexico, and China are still shaping trends in the commercial real estate (CRE) market.
This past May during our Medical Real Estate Conference, Dr. Marci Rossell, former Chief Economist for CNBC and former co-host of the well-known “pre-market” morning news and talk show Squawk Box, discussed the impact of tariffs on the economy in more detail during her Keynote presentation, The Economy 2025: Tax Cuts, Deregulations and Tariffs Drive the Agenda.
“These are the highest tariffs we’ve seen in over 100 years,” Dr. Rossell said. “Tariffs can sap growth over a long period of time which can be more problematic than a short-term recession.”
When asked about how tariffs will impact the construction industry specifically, Dr. Rossell responded: “If you are in construction, you are in the most economically sensitive areas, particularly when it comes to uncertainty. The bigger the project, the more likely you’ll think ‘let’s just wait and see.’”
The CBRE report aligns with the mentality, citing that many occupiers are taking a “wait-and-see approach” before making real estate decisions. Their research states that “the imposition of widespread tariffs on imports likely will have a significant impact on market activity, especially if increased costs are passed on to consumers.”
While this approach is understandable, Dr. Rossell emphasized that “it’s more problematic to push it [a project] down the road. It’s the uncertainty that’s hurting the construction industry more that the tariffs and inflation.”
When looking at the bigger picture, the lack of consumer sentiment seems to be at the heart of these issues. “Consumer sentiment is half of what it was 25 years ago,” Dr. Rossell shared. “When you look at sentiment among younger people, it’s quite low, which I think is because of the housing market.” With prices going up and transactions going down, she pointed out that supply is extremely limited. As a result, she found that “we’re not building enough to keep up with the population.”
Dr. Rossell isn’t wrong — construction completions totaling 64.6 million square feet fell to their lowest quarterly level since Q1 2018, according to CBRE. Additionally, a Cushman and Wakefield report found that “positive construction sector sentiment at the start of the year has faded dude to growing uncertainty,” making it likely that the pace of construction activity will likely be subdued until there is more clarity. Although growth remains slow in some areas, consumer spending has proven resilient. According to GlobeSt and Cushman & Wakefield, most executives continue to express confidence in the sector’s long-term strength. Below are a couple of highlights from the report:
1. Employment growth remain strong:
As of March 2025, construction sector employment rent grew 3.0% YOY, outpacing total employment growth of 1.5%.
2. Labor market pressures ease slightly:
Businesses report a slight improvement in both general labor availability and the match between workers’ skills and job requirements—signs that may support stronger construction activity ahead.
Interested in more content like this? Read our recent articles, What’s Fueling the Data Center Boom? 5 Key Industry Insights or Inflation’s Toll on Industrial and Medical Real Estate. You can view all this content and more when you click here to sign up for our Industrial newsletter!