How Tariffs Are Impacting Commercial Real Estate Construction Costs in 2025

Tariffs hit construction like a surprise rent hike: unavoidable, painful, and usually ill-timed.

Material Costs: Up, Up, and Away

Construction input prices are climbing steadily. June 2025 figures show costs up 2.5 % year-over-year for nonresidential builds, even before the sharpest tariffs hit in August. Aluminum rose 6.3 %, steel 5.1 %, and some structural components surged 22.5 %. Contractors are already feeling the squeeze.

Analysts expect overall commercial construction costs to inflate by around 5 % in 2025 due to tariffs. And some materials have reportedly jumped between 20–40 %, dropping profit margins through the floor.

Pipeline Delays: Projects on Pause

Unpredictable tariff policies are leaving developers and contractors jittery. Uncertainty over their duration and scope means bids are padded or shelved. Multi-billion-dollar projects are being postponed or axed entirely because nobody wants to chase moving cost targets. 

The slowdowns show in the bottom line too with commercial real estate sales plunging in April 2025. Hotel deals dropped 52% and warehouses 34%. Executives blame tariffs on steel and other key materials for spooking buyers. 

Contract Chaos: Legal Nightmares & Lead-time Headaches

Tariffs aren’t just about money, they’re a scheduling and legal minefield.

• RFPs and bids now come with a defensive pricing model, enough to outrun cost shocks.

• Supply chains are stretched. Contractors are forced to diversify suppliers, vet new partners, and accept unknown delivery reliability.

• Permitting and customs add friction. Tariff-inspired red tape slows freight, leading to idle crews and chaotic schedules. 

• Contracts and force majeure clauses are being scrutinized as to whether tariffs qualify as force majeure or cost pass-through event and are a source of growing litigation.

Sector Spillovers: From Retail to Offices

Industrial and retail properties, not just construction projects, are taking hits. Materials cost, inflation, and consumer strain are weakening tenant demand and investment returns. 

Multifamily, hotel, and office sectors aren’t immune either. As developers face cost surges, fewer starts are happening and worsening housing shortages and pushing up rents. 

Eve’s Hot Take

Tariffs aren’t a temporary storm, they’re a climate shift. CRE developers and investors need to plan as if higher material costs and unpredictable supply chains are the new baseline. Those who can adapt their procurement strategies, lock in pricing early, and explore domestic supply options will have a competitive edge. Everyone else? They’ll be stuck paying more, waiting longer, and wondering why the market moved without them.

Connect with Eve Capital to navigate these shifts and keep your deals moving forward.