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Real Estate

Tariff War Could Be Commercial Real Estate Play, KBW Says

TD Bank's chief economist Beata Caranci and Equiton Developments' COO Christopher Wein share their analysis on Canada's housing market as interest rates continu

(Bloomberg) -- Now is a ripe time to buy high-quality commercial real estate names like CBRE Group and D.R. Horton as President Trump’s tariff play sparks widespread market weakness, KBW managing directors Jade Rahmani and Ryan Tomasello say. 

Market perform-rated Walker & Dunlop and American Homes 4 Rent, along with outperform-rated Lennar, Jones Lang LaSalle, Ladder Capital and Starwood Property Trust are also stocks they recommend. 

Single-family rental REITs are likely to remain a safe haven, supported by high occupancy rates and constrained home purchasing. Homebuilders, on the other hand, will be most negatively impacted due to potential declines in consumer confidence, order demand and rising building costs.

Homebuilders aren’t strangers to navigating supply chain disruptions, but additional tariffs run the risk of cycle delay times as builders seek alternative suppliers. The industry will face operational challenges and increased complexity while builders search for substitute or composite materials, the analysts warn in a note to clients Monday. 

Sixty-four percent of a home’s construction cost is building materials — 27% of which are supplied by China, 11% by Mexico and 8% by Canada, according to data from the National Association of Homebuilders. More than 50% of household appliance imports are from China, with 70% of critical sawmill and wood products stemming from Canada. 

Assuming 35 to 50% of US lumber, which accounts for close to 30% of a home’s construction cost stems from Canada, homebuilder gross margins are expected to be cut by 200 to 300 basis points. The analysts expect every 100 basis point change will affect industry earnings by 6%. 

Apart from this, the psychological impact of tariffs alone may slow transaction activity among commercial real estate brokers, while a flight to safe haven assets could reduce long-term rates and spark a rally in Treasuries, they say. 

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