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While it\u2019s too soon to know exactly how tariffs will impact the commercial real estate market, some early cracks are emerging in the retail and industrial sectors, according to Whitley Collins of CBRE, the commercial real estate services company.\u00a0<\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n \u201c<\/span><\/span><\/span><\/span><\/span><\/span><\/span>If you just look at the tariffs…the biggest impact is on retailers and then the knock-on effect, is in manufacturing and distribution, so retailers for sure are the ones bracing the most,\u201d said Collins, <\/span><\/span><\/span><\/span><\/span><\/span><\/span>global president, advisory and transaction services, occupiers for CBRE<\/span><\/span><\/span><\/span><\/span><\/span><\/span>\u00a0said in an interview last week. \u201cRetail is trying to figure out, \u2018what\u2019s it going to mean for our business,\u2019 so there\u2019s a lot of pausing right now on retail transactions and similarly with industrial.\u201d\u00a0<\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n In Q1, the retail real estate sector that includes malls, big box stores and power centers in the U.S. market saw its first quarterly period in which the net absorption of space turned <\/span><\/span><\/span><\/span><\/span><\/span><\/span>negative since early in the pandemic<\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/a> in Q3 2020, according to CBRE\u2019s Q1 retail report. The shift reflected \u201ca cautious start to the year as retailers reconsidered expansion plans amid economic uncertainty.\u201d\u00a0\u00a0\u00a0\u00a0<\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n Many industrial warehouse <\/span><\/span><\/span><\/span><\/span><\/span><\/span>tenants are also taking a \u201cwait-and-see\u201d<\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/a> approach to making industrial real estate decisions and the widespread tariffs are expected to have \u201ca significant impact on market activity,\u201d according to CBRE\u2019s Q1 report on the industrial market. At the same time, the overall U.S. industrial real estate market\u2019s vacancy rate rose to 6.3%, the highest since Q2 2014, or just over a decade.\u00a0\u00a0<\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n In contrast, Collins has seen only a little bit of pausing in the office market and not directly because of tariffs. For example, he said there were a couple deals in the Washington D.C. area where tenants said they were concerned about the cost of constructing new space, given that the cost of furniture, fixtures and equipment is uncertain.\u00a0Contractors and furniture manufacturers were not able to lock in prices and so the deals\u2019 costs could have gone up 10% to 15%, Collins said.\u00a0<\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n \u201cIf you think about that, that’s only a small piece of the overall transaction but it\u2019s material enough that they said, \u2018ok, until we can get more clarity around the price we want to hit the pause,\u2019\u201d Collins said. \u201cIt wasn\u2019t the pause we\u2019re seeing in retail and industrial where, \u2018we\u2019re pausing because this is going to have a dramatic effect on our business.\u2019\u201d<\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n W<\/span><\/span><\/span><\/span><\/span><\/span><\/span>hile<\/span><\/span><\/span><\/span><\/span><\/span><\/span> the office market is still struggling to recover from the body blow that the shift toward working from home has delivered, a few gauges of market health in CBRE\u2019s Q1 report suggested that the U.S. <\/span><\/span><\/span><\/span><\/span><\/span><\/span>office market held steady<\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/a>\u00a0in the first quarter.\u00a0<\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n The overall U.S. vacancy rate was 19%, flat with the year-earlier period albeit still <\/span><\/span><\/span><\/span><\/span><\/span><\/span>hovering around a 30-year high<\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/a>. At the same time, the period marked the fourth consecutive quarter of positive demand, and <\/span><\/span><\/span><\/span><\/span><\/span><\/span>leasing activity increased by 18% year-over-year in the quarter, with year-over-year volume raising in Manhattan, Chicago, Los Angeles, San Francisco and Boston while it held flat in Atlanta and fell in Dallas, Seattle, and Washington, D.C., according to CBRE data.<\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n Renewals inked by firms opting to stay in place comprised 40% of overall leasing, up from about 30% pre-pandemic. In the current uncertain economy, Jessica Morin, director of U.S. office research at CBRE, said she expects that trend to continue.\u00a0<\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n \u201cNot having the cost of moving and building out space is a big reason\u201d for the renewals, Morin said in an interview, noting that the willingness of landlords to negotiate tenant-friendly deals to keep their buildings occupied is also likely to keep renewals flowing. \u201cFor several reasons I think we\u2019re going to see continued strong renewals.\u201d<\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n<\/p><\/div>\n