Uncertain Tariff Policy Shakes Markets, Yet Commercial Real Estate Stays on Solid Ground.

By Marcus Millichap

Short-term stability masks long-term risks. The recent surge in Treasury yields highlights growing unease among investors over the trajectory of inflation, trade policy and demand for U.S. debt. The 10-year yield jumped from 3.34 percent to 4.4 percent in just three days — its sharpest climb since 2001 — despite a temporary pause on some tariff s. While Treasuries are traditionally seen as safe-haven assets during uncertainty, that dynamic appears to be shifting. A well-received 10-year bond auction briefly calmed markets, with indirect buyers — often foreign central banks — taking a record share. Speculation, however, is mounting that foreign holders, particularly China and Japan, may be reducing their Treasury exposure as economic retaliation or to support their weakening currencies. Meanwhile, the Treasury is expected to increase issuance following a likely debt ceiling resolution, just as the Federal Reserve continues $5 billion in monthly quantitative tightening.

These developments suggest a potentially limited buyer pool for long term debt. Though short-term volatility could bring the 10-year yield back near 4 percent, pressure from increased issuance, lower foreign participation and sticky inflation may drive rates higher in the months ahead. For borrowers, the current volatile rate environment might off er narrow windows to secure financing. Commercial real estate faces near-term challenges. Potential inflation, slowing economic growth and interest rate uncertainty are causing unease. That said, if recent U.S. trade and economic policies stay fluid and unpredictable, commercial real estate could remain one of the more durable investment options. Preliminary first-quarter 2025 data shows apartment and office vacancies each declined by around 10 basis points, retail vacancy stayed stable and industrial availability rose slightly, indicating that the market is entering this uncertain period with sound footing. Still, consumer sentiment has dipped 31.4 percent since December, which may lead to less household formation and less spending at retailers.

Multifamily : Apartments enjoyed vigorous leasing in late 2024, with over 400,000 units absorbed in the second half of the year, though that momentum may cool in coming quarters if weakened sentiment curbs new household formation. Construction material tariff s are likely to compound ongoing building slowdowns, keeping new supply in check. Even so, healthy demand from delayed homeownership by the country’s largest generational cohort — Millennials — should help sustain occupancy and rent growth in many regions, especially those experiencing robust job creation and in-migration.

Retail : As persistent inflation and cautious consumer spending often favor budget-friendly and grocery-anchored retailers, discretionary segments — including restaurants and fashion — could experience softer sales. Yet the sector benefits from an unusually low amount of development in the pipeline, and a historically tight vacancy rate of 4.5 percent entering 2025 provides a cushion against any potential sharp drops in leasing. Retailers less dependent on imports may also avoid the worst margin pressures from elevated tariff costs.

Industrial: The industrial sector’s path hinges largely on trade dynamics. In the near term, existing shipping contracts and the gradual pace of supply-chain realignment could limit any dramatic changes. Over time, however, steeper tariff s on Asian goods could prompt companies to recalibrate shipping routes, favoring markets linked to Canada and Mexico under USMCA. These realignments, including the trend toward nearshoring and reshoring, may spur demand in inland hubs and border regions that cater to shifting logistics strategies.

Office: Despite ongoing structural headwinds, the office market could get a short-term lift if easing labor conditions motivate stronger return to-office policies, reinforcing a modest uptick in leasing after 2024's return to positive net absorption. Swings in Treasury yields and debt spreads may also open brief but advantageous financing windows for investors. Potential extensions of favorable real estate tax provisions might add further incentive, helping commercial real estate remain an appealing choice for those ready to move quickly and think long term.