CRE Post Tariffs—Safe Harbor or Risk of Downdraft?

The team breaks down what Manus calls “tariffs on steroids” and why the impact is more opaque than anything we’ve seen before. With investors reacting to tariffs with a stock sell-off and a flight to the safety of Treasurys, the discussion focuses on the potential impact to commercial real estate (CRE).  Is CRE the new safe harbor? The LightBox CRE Activity Index suggests yes—for now. March saw its highest reading since September 2022, driven by gains in listings, appraisals, and site assessments. But even in this volatile market, there will be winners and losers. The team shares their glass-half-full and glass-half-empty takes on what’s next, asking the big question: Will April showers bring May flowers for CRE—or more market storms? And while investors search for safe alternatives, one brand is betting on comfort food. Waffle House is launching delivery at 500 locations, prompting the team to wonder: are waffles tariff-proof? Probably. As for sticky tables and hangovers—that’s another story.

01:59 The Tariff Fallout Bigger and Broader than Expected

07:58 Is Retail at Ground Zero for Tariff Impact?

10:37 LightBox CRE Activity Index Insights

14:34 Commercial Real Estate as a Safe Harbor?

21:20 Positive Signs in CRE Market

Have questions for the pod team? Send them to Podcast@LightBoxRE.com. 

www.lightboxre.com

Transcript

The CRE Weekly Digest by LightBox

CRE Post Tariffs—Safe Harbor or Risk of Downdraft?

April 4, 2025

This is the CRE Weekly Digest by LightBox Affirm transforming the commercial real estate landscape by connecting every step of the CRE process with comprehensive tools and data. I'm Martha Coacher with our experts Manus Clancy and Dianne Crocker. For the week of March 31st to April 4th, markets reacted to the much anticipated Trump tariffs announcement, sending investors scrambling to make sense of the scale of the levies and reshaping of global trade.

Manus, stocks took a dive today and investors turned to treasuries. Clearly, the tariffs came in much bigger than anyone expected. 

No doubt about that. It was an incredible day yesterday at 4:00 PM Eastern Time when those tariffs were announced. Certainly anybody who was watching CNBC or Bloomberg or Fox Business at that time saw the futures turn sharply negative.

I happen to wake up. Seemingly every hour last night to turn on my television to see what was happening overseas in Asia and then in Europe. It wasn't a pretty picture. As stocks, as you mentioned, sold off sharply, I think at last look the NASDAQ was down five and a quarter percent, five point a half percent, something like that.

What do we make of this? One of the few benefits of getting older? Along with perhaps having grandchildren, watching your kids getting married, and getting a discount at Red Lobster at 5:00 PM. In addition to that, you normally have the benefits of wisdom of having seen things before. So when we see stock market sell offs, when we see volatility in the market, in most cases, you can say, well, I've seen this before.

The tariffs now. Or something we haven't seen before, not of this scale. Certainly the first Trump term saw some, but this is really tariffs on steroids right now and nobody knows where this is going. And I would caution our listeners to say to themselves, I really have to cut out the noise right here.

Anybody who's telling you they know what comes next, or this is gonna be settled quickly, or our trading partners are gonna capitulate. This will or will not trigger inflation, or this will or will not trigger a recession with any certainty. I think you have to dismiss that. I think right now, until we have certain hard data of how people react to this, how long it lasts, what the impact is to prices, there's really no telling.

I'm one who likes to shoot straight. I don't want talk about things that I don't know. And in this case, I really don't know. We're gonna try to peel back the layers and potentially talk about what the impact could be on commercial real estate. But this is a real unknown period right now, and I think we have to talk about it through that lens.

That lens of real, real opaqueness. 

I am addicted to a new Netflix show called The Residents. So I was watching the news on my phone late night, just kind of trying to catch up with the tariff announcements and what they meant, and it was making my head spin. You know, certainly it was not what anyone expected.

We got this unexpected calculation to decipher by country. From a broad level, you had mentioned tariffs on steroids. Rebecca Rocky is the chief economist at Cushman in Wakefield, and as I was catching up on news this morning, she posted on LinkedIn that the effective US tariff rate on imports will go from 2.7% at the start of Trump's 2.0 to around 22%.

And she noted that that was the highest since 1909. So there's your tariff, tariffs on steroids, data point. And I have to say that as I processed yesterday's news, I was kind of remembering when we had Ryan Severino on as a guest a few months ago, and you might remember, he talked about the possibility that tariffs could go in the direction of two extremes.

It could be a broad sword blow across the board, or it could, you know, kind of shake out as Trump using it as a negotiating tool with more of a scalpel approach where we have carve outs for certain countries or carve outs for certain. Products and certainly yesterday was the widespread blow approach.

But now of course, like you said, we wait. Nobody knows will these dial back, will other countries capitulate? You know, what will the impact be? And you know, I think we should all keep the panic in check while we kind of wait to see where the chips fall. But it, it certainly left everybody in a, a very uncomfortable place.

And we saw that in terms of how the stock market reacted, for sure. 

Another unfortunate part of this, I have to say, and I'm, I'm talking about myself personally here, maybe Martha and Dianne. You feel the same, but you see statements being made consistently that are made as though they are fact, yet confirming those facts is really, really hard and time consuming, and it's really hard to know what the truth is.

So you have one constituent set. One group of people out there saying that for the last 20 or 30 years the United States has been taken advantage of. They might also say that this has been sucking jobs away from us, that we need to reset bad trade agreements. But finding out if these are bad trade agreements or how much, if at all, we have been penalized by these agreements, is really impossible to know.

And everybody right now is talking their book If. You are pro tariff, you are saying we have been ripped off for 30 years. Me as as citizen mc, have no ability to really independently determine if that's true or not, right? The same thing with inflation, that if people say. This is going to drive inflation up X percent.

It's gonna drive unemployment up, it's gonna create displacement of the US workforce. Just so hard to know, and that's why I caution anybody, aside from just the length this can go on, it's just really hard to get your arms around what is fact and what is fiction right now. 

I think you're absolutely right, Manus.

I. I point to a couple of things. A number of analysts and others are mentioning that the pivot to bringing manufacturing back to the US is a very difficult process. It's not something that happens quickly. And depending on whether these tariffs hold many business owners, investors will decide, do they wait this thing out and see if this, you know, ends in a matter of months or even through the Trump term.

'cause it could take three to five years. To build a manufacturing plant to staff it. And furthermore, would you be able to staff it with individuals or is it gonna be staffed by ai robots? There's, there's so many things that I think are variables that you cannot game out, and a lot of people are talking about just simply waiting out to see what this really means.

You're right Martha. And I think it, it leaves a lot of business leaders in a really uncomfortable place because how do you plan, you know, how do you plan what might happen to your supply chain if you're a manufacturer? How do you make decisions about where to build plants? You know, how do you think long term?

And, and I think that's why the points that you and Manis just made. Put everybody in such an uncomfortable position of uncertainty and, and not being able to make near term decisions until we have more clarity on, on just what this means and, and how it's going to shake out in terms of, um, prices, in terms of consumer spending, in terms of the potential for recessionary conditions to take hold.

If there's anywhere 

you can see the impact, it's probably looking at retailers. So you saw. That retail stocks took a dive today. And interestingly, CEO, Gary Friedman of RH, which is Restoration Hardware, was doing his earnings call when the tariffs were announced and perhaps unscripted let out an expletive as he saw his stock take a dive.

Afterward, he, he doubled back and, and said that this was going to be a negotiating play by Trump and not something that was gonna be long-term. And he said that they have the wait and see approach rather than to act immediately 

again. He could be correct. Certainly that's what he as a retailer is wishing for.

The retailers are getting absolutely decimated today, but we just don't know. If you've ever been in an economics class, I'm sure many of our listeners have been. The textbook tells you tariffs, bad tariffs, protectionism, leads to higher prices and so forth. But I keep reverting back to what I said a few moments ago, which is if it is a bad trade deal, and that's a very bad if.

Then how does that change the calculus? How does that change how bad the tariff is? Or is it bad at all? And I hope I'm coming out of here, not either pro tariff or anti tariff. The message I'm trying to give here is I just don't know either where this is going right now, or should it last for a long time, what the ultimate impact is.

It's just really. Beyond my experience over four decades in business. Going back to some of the retailers, Martha, that you were just mentioning, I'm looking right now on my screen of the biggest losers today in stock prices. It's kind of a who's who among the top 25 of. Retailers in this list. Five Below.

Way up on the list, Wayfair, Shark and Ninja, Lululemon, the Gap, urban Outfitters. These are all in the top 20. Under Armour, another one in their academy. Sports, which is a sporting goods retailer. Anybody who relies on imported products, and that is gonna be sporting goods, clothing, durables for things like washers and dryers.

They're getting killed today, and rightly so. They're the ones that are really at ground zero for what is happening on the supply chain here and now. 

Manus, we did see some data points on jobs, ADP and the JOLTS number, which gave us a little bit of insight into what's happening. And of course we have the big jobs report tomorrow, depending on where that lands.

Any impact that you can predict there? 

I think it's hard to bounce the markets off the current narrative. Even if you see an extraordinarily hot or extraordinarily cold jobs number, if it's extraordinarily hot, that's probably worse. It probably puts upward pressure on interest rates and so forth. That's probably a net negative, but I do think there isn't a data point right now that comes anywhere close to changing the narrative in the near term about tariffs.

We saw after the ADP number. Earlier this week, stocks were up modestly before the tariff announcement, and when the tariff announcement came out, it just obliterated any gains that were made yesterday. I think that the only thing that revives the market is in the short term whispers, hints, rumors of a settlement between the US and China, or other big trading partners or actual news that that is happening.

Absent that, I think we. Bounce around. I think we see a lot of volatility. We see a lot of hand wringing, and we probably see both sides digging in more people that are anti tariff saying, this has to end. This is crazy. And people that are pro tariffs saying, this is what we voted for, this is what we wanted, and we have to see this through.

The longer it goes on, the more painful it will be, because the uncertainty that Dianne referred to is really troubling. 

Mm-hmm. I think when the jobs report comes out, you know, we might be in this unusual situation where it doesn't get as much ink as it otherwise would. It came out last week. I think, you know, clearly the news for days to come will be dominated by what ifs and speculation about what tariffs mean.

So I am curious, obviously, to see what the jobs report says tomorrow, but I think it will definitely be overshadowed by all the speculation that's going on about, about what tariffs mean. I will say that Federal Reserve Chair Jerome Powell characterized the job market as low firing, low hiring, and that that's held for several months.

So that is the expectation for tomorrow's jobs report, which is forecast to show hiring, uh, continuing moderate, and of course, chair 

Powell's gonna speak tomorrow, so we'll see if he has the same effect that he had a couple of weeks ago of calming the markets a bit. 

Tariffs do put the Fed chair in a tough position.

When you see this much volatility. Normally the knee-jerk reaction on the part of the Fed is to cut rates to calm the markets. At the same time, the Fed is looking at the possibility that the tariffs pushes the inflation rate higher. I don't think this is a very easy time for people at the Fed to kind of.

Figure which way to pivot or pivot at all right now. So his comments tomorrow will be very interesting. I will add that before the tariffs were announced, there was an interview with Austan Goolsbee as well, who's the Chairman of the President of the Chicago Fed, and he was echoing a lot of what Fed Chair Powell was saying ahead of the tariff announcement.

He was saying the employment market is pretty good. The interest rate picture is pretty good. Inflation is moving closer to two, slowly but surely. So he, too was somewhat upbeat, but we'll have to see how that narrative changes When Fed Share Powell talks, it'll be a very interesting it half hour or hour.

So with a lot of volatility going on in the broader market, the question is, is CRE the safe harbor? Otherwise, we've seen some data that points to some positive movement in the CRE market. 

I've been thinking about that too. Will commercial real estate kind of be viewed as a safe harbor when all the chips, you know, fall, I mean.

And thinking about it, I'll take kind of a net positive stance just for a minute. We talked already about the industries that we think will be most impacted by tariffs. They're all the ones that rely on on imported raw materials, right? You know those who will face rising input costs. Those who. We'll be challenged by shrinking margins.

Maybe their supply chain will be disrupted. And you know, it's gonna be industries like automakers, it's gonna be industries that make our headsets and, and other electronics and tech hardware manufacturers. We talked about apparel, we talked about footwear. I. So there is a, a possibility that commercial real estate could be viewed as a safe harbor or a safer harbor, certainly than some of the, those manufacturing sectors that could be hard hit by tariffs.

And think about it from an owner's perspective. Say you own a decent property, say, you know, it's stable, you have great. Tenants who are paying the rent, you know, maybe you're not gonna see much of an adverse impact from higher supply costs that could impact your operating costs or your NOI. I think for me, the obvious impact in commercial real estate will be with new construction that will obviously be impacted in the form of higher prices for building materials.

This could force developers to delay projects, they could cancel projects, and maybe for commercial real estate, that ends up being a nice boost in terms of limiting supply. Maybe it brings the supply demand balance kind of into a, a stronger position in some sectors of the market. I did read that after yesterday's tariff announcement, the chance of a rate cut at the Fed's meeting next month doubled to 20%, and that now they're expecting three or more cuts by the end of the year.

A few weeks ago, people were thinking one or two and not until the end of the year. So that's a big change, and obviously if rates come down faster than we expected a month ago, then that's another plus. For the market in terms of lower rates. So I don't know, Manus, I was voted class optimist in eighth grade and I, I guess it's kind of stayed with me.

You're always good for a contrarian view, so let's hear what you have to say. 

I'll break this down into the glass half empty and the glass half full. I'll start by saying the glass half full begins with. The fact that the yield on the 10 year treasury is really collapsing. I think we're at 4.03% earlier today.

This was 30 basis points lower than where we were 10 days ago. Almost 80 basis points lower than where we were earlier in the year. It is racing lower because people are flooding out of equities into the safety of US treasuries. To your point, from a few moments ago. Dianne, that is beneficial to commercial real estate owners.

If you need to refinance, if you're looking for cheaper capital, a lower 10 year is always beneficial. So we like that. That's a, a good part of it. The glass half full I also think takes on other bullet points that you mentioned just a minute ago as well, which is for existing supply for existing.

Apartment buildings. For example, if you have a stabilized 97% occupancy where you're charging solid rents, where your churn has been very low, you are not paying a lot for lumber supplies. Are you paying something? Sure. You're replacing the carpets periodically. You're replacing appliances periodically, but it's not the dominant cost.

That you face, right? Those dominant costs are utilities, labor taxes, janitorial, landscaping, things like that. So you're kind of immune. So my glass half full picture says Commercial real estate may attract people looking for an equity safe harbor in. The REIT world or perhaps in the lending world. Let me lend more on commercial real estate now than perhaps on CNI.

Sounds like you and Dianne are in alignment on the glass half full. What about the glass half empty? 

Well, the glass half empty on a very micro level is that for every basis point we see. Reduction in yield in the 10 year treasury, we're probably seeing an equal and opposite uptick in risk premiums from CMBS spreads.

Bank lending spreads. The more volatility you see, the higher banks want to be rewarded in terms of spread over treasury. So that part of it is glass half empty, that you just can't look at the 10 year treasury and say, this is the greatest thing ever because we're probably seeing spread widening, but looking behind the super micro, I would say the glass half empty scenario is the tariffs expand to a level that it drives the US economy into a recession, and then this safe harbor is no longer the safe harbor.

Let's get into that a little bit. If we drive the economy so deeply negative that. Instead of renting apartments, people remain with their parents, live in the basement for an extra year, don't rent or start bunking together, right? They start sharing apartments. Then you would start to see that impact on the multifamily sector for sure.

If people stop spending at Best Buy five below Dick's Sporting Goods and those retailers say, we are going to start closing underperforming stores, I. That is the problematic side of this. If it gets out of hand, that's what we're hoping against. To Dianne's point before, under every possibility, it is glass half empty.

For somebody who is hoping to put a shovel in the ground, your availability of capital, your availability of supply chain certainty when it comes to costs has been erased. In the last 48 hours. So for those people, I would say the glass is not half empty, the glass is completely drained. 

We've talked a couple of times about looking at the light box index as an early indicator about whether our markets, the capital markets for CRE are being impacted by tariffs or this vibe session, which is really a feeling that we're going to a recession before we actually do.

What did we find out, Dianne? 

I'm feeling like a Pollyanna because now I'm coming in after mattis's glass half empty with, um, with some good news. But I will say that this is data-driven and it is light Box's CRE activity index for March. It came in at 104.4, which is a really nice uptick over 99.7 in February and 83.4 last March.

There are a couple notables about this reading that I wanna share. They're significant. The first is that the index is above 100 for the first time since September. Back in September, the market rallied post summer in anticipation of the first interest rate cut. It's also the highest that this index has been since September, 2022, two and a half years ago.

And you know, I think what was a really pleasant surprise, especially this week, is that momentum is happening in the midst of a lot of loud chatter. We've heard in March about sentiment weakening, about recessionary fears, about companies pulling back on investment, all the things that we have been talking about in the podcast.

And despite all of that, and despite rates that are still high, despite the rapid fire news developments out of dc, despite all the swings that we've seen in the yield on the 10 year, despite all of that, the index rose in March into the three digits. So. You know, if you've been listening to this podcast, you know the, the index is a three-pronged look at early indicators in the transactions market.

So in March, the index cumulatively reflects nearly 28,000 hits on LightBox's property level data. That's whether the trigger was environmental due diligence, whether it was a new property listing, whether it was a lender awarding a commercial appraisal project. So, you know, I say this because it shows that the index is a very broad, it's a very early indicator of market velocity across all asset classes, across all geographies.

So, you know, if you think about the questions that the index answers based on the three types of inputs we have. Are more commercial properties being listed for sale? Are lenders demanding? More appraisals Are environmental due diligence consultants performing more site assessments in advance of loans or transactions?

And it's yes. Yes and yes. And the index could have swung in the other direction March, but it didn't. And year over year, this March versus last March, all three components were stronger than previous. And then one other point is. If you remember, February was a strong showing over January. So this continues what's now a three month streak of growing momentum across commercial real estate.

So, you know, this month, this week, it's, it's good news and I'll take it, but Manness, you know, as you said in your March market commentary that went live this week on our website, confidence only lasts until the next press conference. So, you know, we'll have to stay tuned to see whether April showers bring me flowers.

Thank you for that, Dianne. That's a lot of great data. I started the half an hour by saying there's a lot we don't know and we don't know how we'll play out. But one thing we do know, and I think this is undeniable, is this, that the first three months of the year we're chock full of volatility even before April 2nd, we saw wild swings in the equity market, wild swings in the bond market.

Plunging home builder, confidence sagging, consumer confidence. And yet, through it all, we now have the highest reading of the light box activity index since September of 22. So what to me is undeniable is at least until April 2nd. The CRE community was shrugging off the threat of tariffs, the threat of inflation, the threat of recession, and was soldiering on.

It had been a safe harbor for the first three months. What we don't know now, post April 2nd, is can that continue? Can the glass have full mindset? Of the market that CRE can be that safe haven, does that continue in April or does it get dragged down by this volatility that now has reached a level 11 when it comes to uncertainty, volatility, and fear?

Right Manus, and when you outlined your glass half empty before, you know, you detailed in a very accurate way all of the ways that higher tariffs could kind of trickle down to affect various sectors of commercial real estate, like multifamily, like retail, and the, you know, the softer data point is what is all this uncertainty and speculation about tariffs going to do to sentiment?

Because as we all know, commercial real estate. Is a function of sentiment of how people feel. And I do think that our data as an early indicator when April comes out, will be very telling in terms of the impact that all of this speculation post tariff announcement really do to sentiment and start impacting data and commercial real estate.

Well, I am certainly a glass half full guy. I'm rooting for the best here. I don't know, but as somebody for whom almost all of my children have left the nest. I'll ask you this, Martha, are you barring the basement door yet? Are you thinking that maybe the glass does get a little bit emptied here and the, and the empty nest becomes full once again?

We'll have to see everybody's gainfully employed, so all things look good. We've talked about the sources of strength. Throughout the industry and you had some headlines that corroborate that. 

Yes. In no particular order. A couple of things caught my eye this week that I will run through that I thought were signs of A market that is not jittery, is not pearl clutching.

It is Moving ahead. The first one comes from commercial observer. Hudson Pacific secured a nearly $500 million deal. a CMBS loan that refinances six West Coast offices, Goldman, Morgan Stanley, and Wells participated in the deal. A a five-year loan that underscores for me that not all office is a disaster for the right class.

A property in a market that is starred for class A inventory. For a property that has a long duration quality tenant roster, those properties can get refinanced. And this was an example of that with Hudson Pacific, getting that nearly $500 million CMBS loan. Another one here again, in no particular order, Prologis paying $77 million for an industrial site in Northern Virginia.

Uh, the property is 94 acres. It's potentially re-zonable for data center. It could also be industrial slash warehouse. Time will tell. But another leap of faith. Somebody paying almost nine figures for, uh, industrial development. That doesn't happen when markets are panicked, when people are nervous to the extreme.

So Prolog is showing a leap of faith there. A headline in New York. Manhattan office market. Near recovery from Covid with a strong Q1 leasing level. That too came from Commercial Observer. Um, couple more things, one more thing. Anyway, in Chicago, a market that has been really obliterated with office oversupply, terrible office headlines in terms of degradation of value, that's probably now $150 a square foot market when it was once a $600 a square foot market there.

JK Equities gets the green light for a redevelopment of a South Loop property. This redevelopment will take an office and convert it to resi. This is on Michigan Avenue. The result will be 49 apartments. Reporting there from the real deal. Why do I bring up this particular one? Well, it shows several leaps of faith here.

One, JK Equity is going forward with its redevelopment plan. That is a leap of faith. The fact that they think that they can borrow affordably, that they can make the numbers pencil out. They can do a successful office. Tourism conversion is a vote of confidence for the Chicago market, but it's also a vote of confidence from the lender who's saying, I believe this project, I believe in it.

I believe it'll be money good, and I'm willing to put money to work in the windy city. So. These stories are my way of closing the loop. By of saying that for the first three months of 2025, there were a lot of bright spots, a lot of green shoots that showed that the market was shrugging off at least until April 2nd, the broader volatility and noise.

Dianne, what is our, did you know for the week? 

Did you know that the last time that properties listed for sale and LightBox platforms was as high as it was in March? Was in May, 2022? They got close last September, but no cigar. And I think property listings are really important indicator because it's a data point that reflects brokers and sellers out there deciding.

Should I list this property now or not? Is this a good time or should I stay on the sidelines and wait and see? And our property listings data shows that they're listing more properties now than they have in almost three years. So if you wanna know more, our Q1 snapshot report is coming out in the next few weeks, and we'll have details on how the listings break out by asset class and pricing category.

I think what you just mentioned was an incredible, incredibly important data point. What you're saying is the number of property listings is higher now than at any time since May of 2022. May of 2022, just one month before we hit peak inflation of 9.3% shortly before the Fed went through a series of rate hikes that took interest rates up by more than 5%.

Since then, we've seen several months where the inflation numbers were very promising, where the yield on the 10 year got very low, but we never surpassed that May of 2022 number. Yet now we have, and I think that that's an inflection point that the market has finally given into the notion that it's mourning in the CRE markets.

We are okay putting risk on, we are okay lending and that the 36 month doldrums that we went through. From the spring of 2022 to the spring of 2025, absent the potential tariff impact are behind us. 

In closing, Manus, I know you're probably not a fan of the Waffle House, but I don't know, maybe you might be knowing that they're gonna launch late night delivery at about 500 stores. 

 A 3:00 AM Waffle House visit after a night in a fraternity basement, or at some college bar.

Seems like a complete recipe for disaster. Not to mention the fact that I'm not a waffle guy to begin with, so I'm not sure I'm in on this one. 

Well, they're safe from tariffs for now. With that, thanks to our producer Josh Bruyning. Please join us every week as our LightBox team shares CRE News and Data and Context.

You can listen on any of your favorite podcast channels and send your comments or questions to podcast@LightBoxre.com. Thank you for listening and have a great week. 

Let's go.