When we think about rising real estate costs, most people point to interest rates, inflation, or labor. But there’s another driver that’s impacting your NOI and turning simple buildouts into budget headaches: tariffs.
If you’re a commercial real estate owner, investor, or operator, it’s time to pay attention to how tariffs on construction materials are affecting not just development, but also insurance premiums, project timelines, and deal profitability.
Here’s a breakdown of what you need to know — and how to stay ahead.
Material Costs Are Spiking — Quietly
Recent tariffs imposed on imported construction materials like steel, aluminum, and softwood lumber are significantly raising input costs.
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Steel and aluminum: 25% tariff
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Canadian softwood lumber: up to 34.5%
In residential real estate, this adds roughly $10,900 to a typical home build. But in commercial real estate — especially multifamily, retail, or industrial projects — that number scales into the six-figure range, depending on scope.
This impacts:
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Ground-up construction
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Tenant buildouts and fit-outs
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Capital improvement projects
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Renovation budgets post-acquisition
These aren’t theoretical increases. We’re seeing deals where budgeted CapEx is now getting revised upward mid-project — or worse, projects are being delayed or scaled back entirely.
Tariffs are Squeezing CapEx Budgets
When the cost of materials goes up, everything gets more expensive:
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Paint, drywall, metal framing
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HVAC systems
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Structural reinforcements
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Roofing and siding
For owners, that means:
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Tighter margins on value-add deals
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More scrutiny from lenders who require updated contractor bids
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Pressure on leasing timelines as construction drags out
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Increased risk when scope creep and pricing uncertainty go unchecked
If you’re underwriting new deals based on last year’s construction costs — or assuming that replacement cost coverage will still be sufficient — it’s time to revisit those assumptions.
Insurance Premiums Are Increasing as a Result
Rising material and rebuild costs affect insurance pricing directly.
Carriers are re-evaluating:
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Replacement cost values on commercial buildings
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Co-insurance penalties if coverage limits are outdated
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Deductible structures, especially in high-CAT areas
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Pricing on builders risk and commercial property policies
We’re seeing premiums increase, not because the risk profile changed — but because the cost to rebuild did.
If your insurance policies haven’t been reviewed in light of tariff-driven pricing increases, you could be exposed to:
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Underinsurance in the event of a loss
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Higher premiums upon renewal
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Longer approval timelines from carriers during quoting
The Ripple Effect on CRE Strategy
Tariffs affect more than costs — they affect how you operate and plan.
Here’s how they’re reshaping the commercial real estate playbook:
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Investors are baking in higher contingencies on construction and insurance
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Operators are staggering CapEx plans to minimize exposure to price swings
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Developers are shifting sourcing to avoid tariff-heavy imports
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Portfolio owners are renegotiating vendor and GC contracts mid-project
This isn’t about panicking — it’s about adapting.
Practical Moves for CRE Owners
To stay ahead of this, commercial real estate leaders are doing three things:
1. Review and Update Insurance Coverage
Ensure your replacement cost estimates reflect current construction costs. Work with your broker to:
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Re-assess property values
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Explore flexible policy terms or higher deductibles
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Review builders risk and renovation coverage structures
2. Rebid CapEx Work Proactively
Before greenlighting any major work, rebid the scope. Contractors are facing price increases and labor shortages. Lock pricing early if you can, and be ready for unexpected costs.
3. Track Policy Shifts
Tariffs are driven by trade policy — and trade policy changes. A change in administration or global supply chain disruption can further alter material costs overnight. Build in a buffer, and stay flexible.
The Upside? A More Resilient Strategy
There is a silver lining.
Tariffs, while frustrating, are forcing CRE players to:
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Diversify supply chains
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Get sharper with budgeting and insurance strategy
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Build stronger vendor relationships
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Move away from outdated underwriting assumptions
In other words, it’s making smart operators even sharper — and exposing weak spots before they become real liabilities.
Final Thoughts
Tariffs are not just front-page news; they’re impacting your deals.
Construction costs are up. Insurance costs are following. And your bottom line is affected — whether you’re doing ground-up development, value-add repositioning, or simply maintaining an aging asset.
By staying proactive — reviewing insurance, adjusting CapEx expectations, and watching for policy shifts — you can navigate this environment while protecting your margins.
Want help reviewing how tariffs might be impacting your insurance costs or replacement values?
Let’s talk.
We specialize in helping CRE owners and operators adjust their insurance strategies to reflect today’s real risks — not yesterday’s prices.
