It’s still early to gauge the full effects of tariffs on the commercial real estate market, but early signs of strain are beginning to surface in the U.S. retail and industrial sectors, according to Whitley Collins of CBRE, the global commercial real estate services firm.

“If you just look at the tariffs…the biggest impact is on retailers and then the knock-on effect, is in manufacturing and distribution, so retailers for sure are the ones bracing the most,” said Collins, global president of advisory and transaction services for occupiers at CBRE, in an interview last week. “Retail is trying to figure out, ‘what’s it going to mean for our business,’ so there’s a lot of pausing right now on retail transactions and similarly with industrial.”

The uncertainty has already started showing up in market data. In the first quarter of the year, the retail real estate sector—which encompasses malls, big-box retailers, and power centers—experienced its first quarter of negative net absorption since the third quarter of 2020, when the COVID-19 pandemic was still severely impacting businesses, CBRE’s Q1 retail report revealed. The decline points to a “cautious start to the year as retailers reconsidered expansion plans amid economic uncertainty,” the report said.

Meanwhile, industrial tenants are similarly adopting a “wait-and-see” stance as they navigate the unpredictability brought on by widespread tariffs, according to CBRE’s industrial market analysis for the first quarter. The report noted that tariffs are expected to have “a significant impact on market activity.” Vacancy rates in the U.S. industrial market ticked up as well, reaching 6.3%—the highest level since the second quarter of 2014, marking a decade-high figure.

In comparison to retail and industrial, the office sector has been less directly affected by tariffs, though some ripple effects are being felt, Collins noted. “We’ve seen a little bit of pausing in the office market, but it wasn’t because of tariffs per se,” he explained. Collins cited instances in the Washington, D.C. region, where tenants expressed hesitation over moving forward with deals due to price volatility in construction materials and furnishings. “Contractors and furniture manufacturers were not able to lock in prices and so the deals’ costs could have gone up 10% to 15%,” he said.

“If you think about that, that’s only a small piece of the overall transaction but it’s material enough that they said, ‘ok, until we can get more clarity around the price we want to hit the pause,’” Collins added. “It wasn’t the pause we’re seeing in retail and industrial where, ‘we’re pausing because this is going to have a dramatic effect on our business.’”

Even as the office sector continues its struggle to recover from the profound disruption of the work-from-home shift, some metrics in CBRE’s first-quarter report point to a stabilizing trend. The national office vacancy rate stood at 19% in Q1, unchanged from the same time last year, although it remains at levels not seen in roughly 30 years.

Despite elevated vacancies, the office sector achieved a fourth consecutive quarter of positive demand. Leasing activity also saw a boost, rising 18% year-over-year in the first quarter. Markets including Manhattan, Chicago, Los Angeles, San Francisco, and Boston reported annual gains in leasing volume, while activity was steady in Atlanta and fell in cities like Dallas, Seattle, and Washington, D.C., according to CBRE data.

A notable shift has been the growing share of lease renewals. According to CBRE, 40% of total leasing activity in the first quarter came from tenants renewing their existing spaces—a jump from the pre-pandemic average of around 30%. Jessica Morin, director of U.S. office research at CBRE, said the trend is likely to persist in today’s uncertain economic climate.

“Not having the cost of moving and building out space is a big reason” for the rise in renewals, Morin said in an interview. She added that landlords’ willingness to offer more tenant-friendly lease terms to retain occupancy is another factor encouraging renewals. “For several reasons I think we’re going to see continued strong renewals.”

Although the commercial real estate landscape faces growing headwinds from tariffs, not all sectors are being hit equally. With retailers and industrial tenants rethinking expansion plans and new leases, and office tenants opting to stay put, the market appears to be entering a phase marked by caution and delayed decision-making. As uncertainties over global trade policy and construction costs continue to cloud the outlook, stakeholders are treading carefully, weighing their next moves before committing to major real estate transactions.

Originally reported by Maura Webber Sadovi in Construction Dive.