Limon Net Lease Group

Research Brief

Financial Market Whiplash vs CRE Investment Durability

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Tariff Reprieve? Uncertainty Likely to Remain Elevated ​

90-day tariff reprieve, but not for China​

  • Tariffs for most countries set to 10%, China now 145%​
  • 13.4% of U.S. goods imports came from China in 2024 ​
  • Net effective tariff rate now at 27%, highest since 1903​

White House Policy Volatility and Uncertainty​

  • Tariff policies likely to change frequently, raising uncertainty and making decisions more difficult for consumers, businesses, and investors​
  • Uncertainty driving financial market volatility with wild swings in stock market and bond rates​

CRE may be positioned as most durable investment option​

  • Lower volatility, positive fundamentals, recession resistance, and inflation resistance all favor CRE investment ​

Sources: Marcus & Millichap Research Services, S&P Dow Jones Indices​

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Market Reacts to Tariffs – Implications for CRE

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Tariffs Trouble?​

Sweeping Tariff Policy Changes Elevate Uncertainty​

  • New executive order raises the U.S. effective tariff rate from 2.5% to 24%, the highest in over a century​
  • Country-specific tariffs hit China hardest at 54%, with steep rates also imposed on Vietnam, Taiwan, South Korea, Japan, and the EU.​
  • Product-specific tariffs include 25% on steel, aluminum, autos, and potentially pharmaceuticals, semiconductors, and lumber​

CRE Outlook Increasingly Choppy Over Short-Term​

  • Higher inflation and slowing economic growth may slow job creation, spending, and household formation — reducing apartments, retail, and industrial space demand​
  • Tariffs will, however, also increase construction costs, mitigating new supply risk​

CRE Opportunities​

  • Brief window of lower interest rates on debt financing ​
  • Historically, CRE outperforms in times of economic turbulence, rising inflation and financial market distress​

China based on previous 20% tariff imposed​
Sources: Marcus & Millichap Research Services, White House​

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Rising Above Uncertainty: A Five-Year Perspective

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Looking Back, Looking Ahead: ​Commercial Real Estate Through Uncertainty​

Elevated Uncertainty Mirrors Early Pandemic Conditions​

  • The Economic Uncertainty Index is at its second-highest level on record​
  • Investors are contending with headlines about tariffs, deportations, government department cuts, and inflation risks​
  • The current climate echoes the volatility experienced in 2020, making short-term forecasting difficult​

Commercial Real Estate Performance Since 2020 Shows Resilience​

  • Retail, industrial, and multifamily have all seen strong rent and price gains since 2019​
  • Office experienced challenges, with higher vacancy, but still posted positive absorption in 2024​
  • Across most property types, commercial real estate values and fundamentals improved despite volatility​

Long-Term Perspective Remains Key Amid Today’s Risks​

  • Many investors who bought during peak uncertainty in 2020 have seen strong returns since​
  • Despite the noise, declining construction, favorable demographics, and U.S. economic strength support a long-term investment outlook​

Includes sales $1 million and greater​
Sources: Marcus & Millichap Research Services, CoStar Group, Inc., Real Capital Analytics​

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The Forces Driving Long-Term Rental Housing Demand

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Demographic Trends and Housing Costs Sustain Rental Demand​

Millennials Are Reshaping Rental Housing Demand​

  • There are 73 million millennials, now in their late 20s to early 40s, that are coming into key life stages like marriage and family formation​
  • Apartment lease renewal rates have climbed to 55% as fewer renters move into homeownership​
  • Enhanced amenities, modern designs, and better services have made rental housing more attractive​

Affordability Challenges Are Reshaping Housing Decisions​

  • Home prices have surged, rising 6.1% in the past year and nearly 50% since early 2020​
  • The monthly cost of owning a median-priced home is about $3,100, compared to $1,830 for an apartment​
  • The median first-time homebuyer age has risen from 30 in 2010 to 38 in 2024​

Limited Housing Supply Keeps Pressure on Rentals​

  • New single-family home construction remains low, keeping home prices elevated​
  • Mortgage rates show no signs of significant declines, reinforcing the affordability gap​
  • With fewer homes being built, rental vacancy rates could tighten, supporting rent growth​

As of 2024
Sources: Marcus & Millichap Research Services, U.S. Census Bureau, National Association of Realtors​

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High-Speed Cycles Require Long-Term Thinking

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Beyond Market Volatility: ​Demographics Drive Long-Term Medical Office Growth​​

Rapidly Changing Economic Conditions Challenge Investors​

  • Market data is becoming outdated faster than usual, making it harder to rely on traditional indicators​
  • The latest economic forecasts for 2025 are already shifting, with major firms revising their projections.​
  • Inflation data lags real-time changes, missing key cost increases like the 30% rise in steel prices​

Aging Population Is Driving Medical Office Demand​

  • 11,000 people turn 65 every day, leading to a surge in healthcare service usage​
  • Seniors visit the doctor 7.1 times per year on average, nearly double the rate of younger adults​

Medical Office Construction Is Slowing Amid Growing Demand​

  • Only 8 million square feet of new medical office space was built in 2024, down from 14 million in 2023​
  • Construction starts have declined sharply; rising labor and material costs could limit new development further​

​From 1Q 2025 through 4Q 2029​
Sources: Marcus & Millichap Research Services, U.S. Census Bureau, Moody’s Analytics ​

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Economic Uncertainty to Favor Commercial Real Estate

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Trade Policy Shifts and Economic Uncertainty​

The United States has escalated its Tariff Policies​

  • Mexico, China, and Canada are the U.S.’s three biggest trade partners accounting for 41.5% of goods imports in 2024​
  • U.S. President Donald Trump’s new 25% tariffs on imports from Mexico and Canada took effect on March 2, 2025​
  • President Trump also issued a new Executive Order on March 3, 2025, to increase the 10% tariff on all imports from China to 20% on March 4, 2025​

The United States faces economic risks​

  • The Atlanta Federal Reserve Bank has updated its GDP forecast for Q1 2025 from a -1.5% contraction to a -2.8% contraction, but noted that this is a modeled estimate ​
  • The implementation of tariffs pose could slow economic growth and increase inflationary pressure​

The Economic Policy Uncertainty Index has risen to its second highest level in history, but does create some…​

  • Heightened uncertainty creates a variety of challenges, including indecisiveness from businesses and volatility in the financial market​
  • As uncertainty rises, investors may continue reallocating capital toward hard assets such as real estate, seeking stability​

​Sources: Marcus & Millichap Research Services, U.S. Census Bureau ​

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