Feb 4

Feb 4 What would possible lower interest rates along with tariff will do to real estate market?

Introduction

Lower interest rates and new U.S. tariffs are creating divergent pressures on global real estate markets in 2025, with opportunities emerging in some sectors and regions while others face heightened risks. Here’s how these forces are reshaping the landscape:

Impact of Lower Interest Rates

Commercial real estate recovery

Central banks’ rate cuts since late 2024 are easing financing costs, particularly benefiting private markets and high-quality assets.

Commercial real estate is seeing renewed investor confidence as rent growth replaces cap rate compression as the primary value driver.

Bifurcation in property markets

While prime office and logistics assets attract capital, distressed properties (especially in oversupplied office markets) face refinancing challenges. U.S. markets are stabilizing, but Europe lags due to slower rate adjustments.

Global growth support

The Fed’s cumulative 1% rate reduction since mid-2023 is bolstering economic activity, indirectly supporting housing demand in markets like Canada and Mexico.

U.S. Tariff Disruptions

Construction cost inflation

A 25% U.S. tariff on Canadian/Mexican goods and 10% on Chinese imports is raising prices for steel, copper, and building materials.

Canadian housing starts—critical for addressing affordability—could drop 5-10% in 2025.

Sector-specific risks:

Automotive/industrial

Tariffs threaten $12B in annual Canada-U.S. construction material trade, impacting automotive-dependent regions like Michigan and Ontario.

Residential markets

U.S. homebuilders face 4-6% cost increases, potentially slowing new supply amid already elevated prices.

Macroeconomic spillover Retaliatory tariffs and supply-chain disruptions could reduce global GDP growth by 0.3-0.5% in 2025, dampening real estate investment in trade-exposed economies like Germany and Mexico.

Regional Divergences

Balancing Forces in 2025

Tailwinds

Rate cuts ($450B+ in global liquidity injections), AI-driven demand for data centers, and decarbonization investments ($1.2T projected in green real estate).

Headwinds

Tariff-related inflation (adding 0.8-1.2% to U.S. CPI), geopolitical risks in Ukraine/Middle East, and tighter immigration policies reducing U.S. construction labor supply by 3%.

Conclusion

Goldman Sachs forecasts 2.7% global growth in 2025 but warns that full-scale trade wars could halve this figure, disproportionately impacting real estate markets reliant on cross-border capital flows. Investors are advised to prioritize markets with strong domestic demand (India, Brazil) and sectors aligned with structural trends like AI infrastructure and renewable energy.

FAF review

To offset tariff, we predict Feds will cut interest rate by 1-2 % in 2025 and may be touch lowest in two decades. This is also based on his Trump1.0

We need to play out Trump fiscal policy as it will affect global markets in real estate too

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