Impact of U.S. Tariffs on Logistics & Industrial Real Estate: An Investment Briefing

MMCG
May 1
4 min read

Executive Summary

Escalating U.S. tariffs have introduced significant uncertainty into trade-dependent industries. With effective tariff rates rising to levels not seen since the early 20th century, consumer prices have increased and GDP growth forecasts have been trimmed. Import volumes remain robust but are shifting away from China toward Mexico and Southeast Asia. Major ports continue to record near-record container throughputs, though with regional winners and losers. In the industrial real estate sector, a wave of speculative delivery has outpaced leasing demand, pushing national vacancy into the high 6–7% range and slowing rent growth to the low single digits. Investors have responded by repricing risk: core logistics cap rates have moved into the mid-6% to 7% band, creating attractive entry yields for high-quality warehouses. As supply growth decelerates in 2025 and occupier caution eases, we expect rental momentum to return in 2026, particularly in gateway and infill markets. In this environment, the optimal strategy is to “buy quality at resets”—focusing on modern distribution centers in key corridors and assets tied to essential goods.

1. Tariff & Macro Impact

Tariff escalation: U.S. average applied tariff rates have climbed above 22%, the highest since 1909, driven largely by duties on Chinese imports. These measures have added roughly 2.3 percentage points to consumer inflation and shaved about 0.5 percentage points off projected GDP growth in 2025.
Spending implications: Higher import costs are weighing on discretionary spending—the sector underpinning nearly 40% of new warehouse leasing. Yet a strong dollar and resilient labor market have partly offset these headwinds, keeping port and industrial activity near pre-tariff levels.

2. Import Shifts & Port Throughput

Diversification away from China: U.S. importers have rerouted cargo to Mexico, Vietnam and other Asian suppliers to mitigate tariff risk. The result is a broadening of trade lanes, with Mexico and Southeast Asia gaining share at China’s expense.
Port dynamics:
- West Coast: Los Angeles/Long Beach have seen modest volume declines but remain among the busiest globally.
- East & Gulf Coasts: Savannah, Charleston and Houston have absorbed much of the redirected Asia-bound cargo, posting record or near-record annual TEU counts.
Logistics footprint impact: Companies are expanding capacity at secondary ports and leasing near-border distribution centers to improve flexibility and defer duties via Foreign-Trade Zones.

3. Industrial Market Dynamics

Vacancy and supply: Eleven consecutive quarters of rising vacancy have pushed the national industrial vacancy rate to approximately 6.9–7.3%. Over the past 12 months, roughly 322 million SF of new space was delivered while net absorption totaled only about 125 million SF.
Rent trends: Year-over-year asking rent growth decelerated to about 2.1% in early 2025, down from double-digit gains in 2022. Landlords are increasingly offering concessions—free rent now commonly amounts to 3% of lease value on new deals.
Regional variation:
- Oversupplied hubs: Sunbelt and Midwest markets (e.g., Austin, Indianapolis, Phoenix) show vacancies of 7–8% in 100–500 K SF buildings and face multi-year absorption horizons.
- Tight infill/gateway: Inland Empire, Northern New Jersey and Seattle benefit from development constraints and sustained import flows, keeping vacancies below 5%.
- Small-bay scarcity: Last-mile facilities (10–50 K SF) remain constrained in growth markets like Nashville and Charlotte, supporting modest rent growth of 2–3%.

4. Investment & Capital Flows

Transaction downturn: Industrial transaction volume fell from a pandemic-era peak of ~$21 billion in 2021 to roughly $9–11 billion annually in 2023–24.
Cap-rate repricing: Core logistics yields widened from the low-4% range to mid-6%–7% by early 2025. Trophy assets now trade sub-5%, while secondary properties yield 8–9%.
REIT strategies: Major industrial REITs are focusing on selective development and build-to-suit projects with embedded rent escalations, avoiding large-scale M&A and leaning on sale-leaseback and conversion transactions to deploy capital. Lenders remain willing to finance stabilized assets but with conservative underwriting.

5. Corporate Supply-Chain Adaptations

Inventory acceleration: Many import-dependent firms pulled forward shipments into late 2024, driving a surge in U.S. warehouse utilization as companies built precautionary stockpiles.
Diversified footprints: Occupiers are adding capacity at secondary ports, expanding nearshoring in Mexico and Southeast Asia, and leveraging third-party logistics providers and Foreign-Trade Zones to manage duty exposure.
Lease strategies: Facing policy uncertainty, tenants favor short-term commitments and modular facilities, postponing large expansions until tariff outlooks clarify.

Strategic Implications for Investors

Buy quality at resets: With cap rates at multi-year highs, prime distribution centers in core markets offer compelling entry yields—particularly those with high clear heights, sustainable design features and modern automation.
Favor essential-goods logistics: Assets serving consumer staples (grocery, pharmaceuticals, industrial inputs) will outperform discretionary inventory space if economic growth slows.
Target constrained infill: Gateway and coastal infill markets with high barriers to new development should lead the next leg of rent growth once the current supply cycle abates.
Monitor policy developments: Occupiers’ willingness to commit to large leases will hinge on tariff clarity; investors should watch trade negotiations closely and be ready to capitalize on renewed leasing momentum.

May 1, 2025, by a collective of authors of MMCG, an industrial real estate feasibility study consultant

Sources:

IBISWorld, Business Environment Report B205: Total Imports, March 2025. Details U.S. import values (2015–2025 historical, 2026–2030 forecast), drivers including trade tensions, commodity prices, supply-chain diversification and outlook for renewable energy and nearshoring.
IBISWorld, Industry Report 48311: Ocean & Coastal Transportation in the U.S., Published December 2024 by Seth Lee. Industry revenue, profit margins, major players (Carnival, Maersk, MSC, Royal Caribbean), SWOT analysis, trade-driven demand drivers and external factors (Jones Act, security regulations).
Prologis, “Industrial Market Insights Q1 2025,” Prologis Research. Analysis of U.S. warehouse utilization trends, development pipeline, regional performance and tenant demand drivers in the context of trade policy uncertainty.
CBRE, “U.S. Cap Rate Survey H1 2024,” CBRE Capital Markets. Data on industrial cap-rate compression/expansion across core, core+ and value-add property tiers, investor sentiment, and financing conditions.
JLL, “Global Logistics Outlook 2025,” JLL Research. Overview of global trade patterns, port throughput data, supply-chain resilience strategies, and the impact of tariff policies on logistics real estate demand.