By: Head of Data Strategy at LightBox, Manus Clancy
As we mentioned on last week’s LightBox CRE Weekly Digest podcast, the market went from oversold to overbought before you could say ‘Bob’s your uncle.”
For those that have read previous blogs and/or listened to the weekly podcasts, we were believers that the market reaction was too severe. Yes, a long tariff/trade war scenario always ran the risk of inflicting real damage to the U.S. economy. But the other side of the coin was that we were always a tweet away from a return to normalcy (which now seems to be the baseline scenario).
More narrowly, for CRE, we were early believers that commercial real estate could be a relative safe haven for investors. Yes, spec industrial, high-end hotels, and certain retail categories were admittedly more exposed to potential tariff fallout, but most other asset classes appeared largely immune to any direct trade-related damage.
Fast forward a few weeks and the markets are full steam ahead.
The U.S. and China hit a 90-day pause button on tariffs, and while the headlines are all smiles and handshakes, the question for commercial real estate folks is how does this move the needle?
Even before the May 11 détente announcement between the U.S. and China, the CRE markets continued to function. Capital—while somewhat constrained—remained available, even for construction loans. LightBox data showed no significant downturn in sales activity, and CRE economic velocity, as measured by the LightBox CRE Activity Index, posted a modest uptick in April.
Our question now, post May 11, is this: Is the market now getting ahead of itself?
Certainly, at a broad level, you could make the case. U.S. equities entered 2025 trading at near-record price-to-earnings (P/E) ratios, signaling elevated valuations. Now that stocks have nearly erased their April losses, the question is whether market exuberance has gone too far.
On the CRE front, part of the recent rise in the 10-year Treasury yield reflects a broader investor shift back into risk assets. If this signals a return to business as usual, CRE investors can breathe a sigh of relief. But if it triggers a gold-rush mentality—which is far from out of the question—there’s a real risk the CRE market could get ahead of itself.
The Good News: Industrial Gets Back to Business
If you own or operate logistics, warehouse, or manufacturing space, you probably breathed a sigh of relief. Tariffs on imported components and finished goods were creating real cost drag. With that pressure on pause, supply chains may normalize—at least for now. Don’t expect a mad rush of new leases overnight but watch for upticks in activity in port-driven markets like LA, Savannah, and even the Inland Empire.
Retail: Less Pain, but No Champagne
For struggling brick-and-mortar retailers, this pause may slow the bleeding. Margins have been getting squeezed from every direction: inflation, labor, rent, and—yes—tariffs. A temporary break here helps, especially for those dependent on Chinese imports. But let’s be honest: this won’t change the long-term secular trends that have faced retail real estate. It might help underperforming stores stay open longer. That’s about it.
Developers and Contractors Can Breathe (Slightly) Easier
Tariffs jacked up prices on everything from steel and aluminum to lighting fixtures. Developers had to factor in wild cost swings just to get a project off the ground. If this truce holds, we may see more predictable input costs—and that alone could kick some shelved projects back into motion. Again, not a boom, but maybe a thaw.
Capital Markets: Still Cautious
For CRE lenders and investors, a bit of global calm is always welcome—but it’s not yet the kind of predictability the market needs. It’s hardly 2019. Credit is still tight. Underwriting is more disciplined. And concerns about office distress, regional bank exposure, and valuation resets aren’t going away because of a handshake in Switzerland. This is a modest, positive development, not a game-changer.
Consider the Bigger Picture
Here’s what’s important to note: the commercial real estate market has already been showing signs of positive momentum in contrast to the turbulent equity market. LightBox’s latest CRE Activity Index tells the story—deal volume, site activity, and prospecting metrics have all been trending in the right direction since Q4 2024. There were real concerns that tariffs would slow any positive marker momentum. The pause stems a large spike in import inflation and potentially recessionary cost cutting. That’s not just good for CRE, but the broader capital markets. The tariff pause removes a roadblock from an engine already trying to accelerate.
For Now, Focus on the Fundamentals
I’m all for fewer negative headlines about trade wars. This pause in tariffs removes one source of friction in a market that’s already contending with inflation, tight capital, and stubbornly high interest rates. But let’s stay focused on the fundamentals.
This is a step in the right direction—but we’re still climbing a hill. The good news? The market’s showing signs that it wants to keep moving in the right direction.
A step forward, yes—but the climb isn’t over.
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