…Strategic Adaptation in a New Tariff Environment
In our previous article, we explored how President Trump’s sweeping 2025 tariff implementation is reshaping the global hospitality industry through shifting travel patterns and increased procurement costs. This second piece in our series examines the broader implications for operational real estate, where these same trade policies are transforming development economics, investment flows, and asset valuations across markets.
The operational real estate sector faces significant challenges from recent tariff implementations, with particularly acute impacts on development costs, investment flows, and asset valuations across global markets. These trade policies create both immediate pressures and longer-term strategic considerations for real estate investors, developers, and asset managers.
Construction Cost Inflation and Development Pipeline Recalibration
Construction costs have increased substantially due to tariffs on imported materials, with the Associated General Contractors of America reporting steel products remaining 15.2% higher than pre-2018 baseline levels. Turner Construction’s Q1 2025 Building Cost Index indicates a 3.8% year-over-year increase in construction costs, with ongoing tariff impacts still affecting supply chains.[^1] For real estate developers, these cost pressures are translating directly to project feasibility challenges and compressed returns.
Development pipelines are being recalibrated in response to these pressures. CBRE’s US Hotel Horizons shows the development pipeline increasing by 4.2% over 2024, though still 11% below 2019 levels due to persisting material cost challenges.[^2] In contrast, the Middle East pipeline increased 22%, with Saudi Arabia and UAE accounting for 72% of all new supply, demonstrating regional variations in development viability.
Shifting Investment Flows and Market Performance
Investment flows are shifting in response to these trade dynamics. Cushman & Wakefield’s Global Capital Markets Report shows Chinese outbound real estate investment at $11.2 billion for 2024—representing a significant reduction from the $35.6 billion peak recorded in 2017.[^3] Similarly, Canadian investors, who have invested over $180 billion in U.S. real estate since 2015, have slowed their activity amid diplomatic tensions.
Regional real estate markets show divergent performance. European transaction volumes reached €17.5 billion in 2024, with ESG-certified properties commanding a 12% premium. JLL’s Asia Pacific Investment Outlook documents $14.7 billion in transactions, representing a 45% increase over 2023. The Middle East shows the strongest momentum with investment volumes of $8.2 billion, a 63% increase over the previous year.
Strategic Responses and Emerging Opportunities
Despite these challenges, the REIT sector has demonstrated resilience. The FTSE Nareit Lodging/Resort REIT index showed a total return of 5.8% for fiscal year 2024, finally outperforming inflation after several years of underperformance. This recovery signals investor confidence in the sector’s ability to navigate trade-related challenges.
For real estate investors and operators, strategic responses include diversifying portfolios across geographies, embracing local sourcing strategies to mitigate tariff risk, focusing on value-add renovations that enhance energy efficiency, exploring modular construction to reduce build times, and aligning with public-private partnerships in growth regions. Properties with strong ESG credentials particularly stand out, with Knight Frank data showing a 12% premium for such assets.[^4]
The ability to navigate these trade-induced cost pressures while identifying emerging opportunities in secondary markets and sustainable assets will define success for operational real estate in this transformed global landscape.
This article concludes our two-part series examining the impact of recent trade policies on the hospitality and real estate sectors. We hope these insights provide valuable guidance for industry stakeholders navigating this new economic landscape.
Sources
[^1]: Associated General Contractors of America, “2024 Construction Inflation Alert,” March 2025.
[^2]: CBRE, “US Hotel Horizons,” Q1 2025.
[^3]: Cushman & Wakefield, “Global Capital Markets Report,” Q1 2025.
[^4]: Knight Frank, “European Hotels Figures,” January 2025.
Additional Sources:
- JLL, “Middle East & Africa Hotel Investment Outlook,” March 2025.
- Colliers International, “MENA Hotel Market Survey,” Q1 2025.
- FTSE Nareit, “Lodging/Resort REIT Index Performance,” April 2025.
- JLL, “Asia Pacific Hotel Investment Outlook,” March 2025.
