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Editor’s note: In an effort to help our community better future proof its supply chains, navigate tariffs and lead during rising economic uncertainty, we’ve partnered with the team at AlixPartners. More information, insights and ideas >
The drastic and dramatic overhaul of tariffs announced by the U.S. government in early April upended decades of free-trade-oriented import and export duties. The move towards economic policy that aims to use high tariff rates to protect domestic industries has already disrupted global supply chains.
Despite limited certainty on the exact terms of tariff imposition on imports and a partial rollback on certain tariff measures, commercial real estate firm Cresa says that the uncertainty the actions have fostered is putting pressure on global markets and delaying corporate investment decisions. In turn, the U.S. warehousing market is experiencing compression on rates and availability.
This is leaving shippers with a limited window to secure suitable near-term capacity, while changing trade dynamics from a new tariff structure could result in tighter availability in some areas.
How can companies respond in a strategic way with enough agility to match the uncertainty that persists longer term?
How U.S. warehouses have been hit
An immediate move to hedge against the initial hike in tariffs has seen a spike in demand for bonded warehousing space that is expected to be sustained. As bonded space allows companies to defer duty payments until products are removed for consumption (for up to five years), this creates some protection from the punitive tax rates some imports could incur.
A WiseGuy research report expects the market to grow from $174.74 billion in 2024 to $273.6 billion by 2032, with strong interest in port cities, such as LA, and inland hubs like Chicago.
A flurry of negotiation activity between the current U.S. administration and other governments has led to 90-day pauses on the introduction of the highest tariffs, followed, in some cases, by un-pauses, removing the reprieve.
This heightened level of uncertainty led some importers to pull forward volume before pauses were announced, while some may be increasing import volumes again while the 90-day agreements remain in place. However, some of this activity could be hampered by exporters: China is restricting exports of rare earth minerals, for example.
Cresa has reported that companies are building in greater inventory resilience by stockpiling critical components, which is also driving near-term demand, particularly for flexible space.
An April report in Commercial Edge showed economic uncertainty had paused leasing activity, with the national vacancy rate (at 8.5 percent in February) forecast to continue to rise until the second half of the year. Broker-led real estate services firm Lee & Associates said larger logistics buildings (>100,000 SF) were recording 9 percent vacancy while the market for small bay facilities remains tighter at <4 percent.
“Many of our clients are pushing the pause button on wide-scale expansion initiatives as they re-think their short- and long-term strategies,” says Tricia Trester, Head of Client Solutions at Cresa.
“We are seeing this most in the industrial sectors, opting to renew for shorter terms, doing their best to retain flexibility as all of this unfolds. Many of our clients are urgently requesting updated budgets and forecasts from their business units based on increased costs and shifts in timelines before committing additional capital.”
Cresa, Lease Trends, Q1 2025
The 345MSqFt of industrial space under construction is down significantly from the levels seen two years ago, but more in line with a longer-term trend after the spike in new supply seen in 2023.
But the delays to leasing decisions and increasing construction costs could add uncertainty to the project pipeline.
Cresa says that the tariffs levied on imported materials such as steel, aluminum and electronics are expected to drive up construction costs, incentivizing lease extensions rather than new builds.
Lee & Associates points out that new speculative construction is at a 10-year low, while leasing activity spiked in Q1 2025 ahead of tariff escalations, led by activity Midwest and Southeast markets.
Certain markets are continuing to see growth in leasing and investment, however. Los Angeles is seeing a major resurgence in industrial investment: YTD sales reaching $233M, ~3X the $80M from the same period last year.
Markets like Savannah, Georgia and Dallas, Texas, are also experiencing significant growth in warehouse leasing. The 2025 National Industrial Construction Report showed Savannah leading, with 24.7 million square feet under construction, expanding its market by almost 17 percent.
Assessing the long-tail impact
The longer-term impact on supply and demand for warehouse space is less clear as it is tied to the wider economic effects that will inevitably feed through.
The need to be agile and mitigate risk should lead to bonded and short-term/flexible warehousing space continuing to demand a premium.
Shippers and importers have considerable capacity coming online, compared to the capacity crunch seen as economic activity restarted following the Covid-19 pandemic, but the biggest wildcard is the longer-tail impact on consumers as import levies feed through into product prices.
The reciprocal nature of tariffs means tariff retaliation, manufacturing footprint shifts, trade rerouting and other activities could have multiple potential knock-on effects across the U.S. warehouse market.
Many companies have already announced changes to supply chain flow and re/onshoring investment.
Alcoa’s CEO said the company would look at optimizing its exports “based on any new tariff structures”, rerouting Canada-made aluminum to Europe to avoid US tariffs, for example.
Car manufacturers Hyundai and Honda have both announced U.S investments, removing car and car parts from import and export activity.
With China bearing the brunt of the tariff hikes, companies are looking to reduce their operations there. Target is reducing its footprint in China by 5 percent, moving production to locations like Honduras and Guatemala, where tariff burdens are lower.
The initial response by many companies to stockpile inventory and get ahead of the tariffs, however, comes with consequential drawbacks: increased inventory requires more space, labor and management.
We’ve explored how different economic scenarios—and the consequent supply chain strategy changes—could play out in the warehouse market.
*Tariffs Are Raising Costs for Steel and Other Construction Materials – Business Insider
Acting on upheaval – mitigate cost risk and find opportunities
With the new paradigm for U.S. trade policy—coupled with uncertainty on the exact new terms of trade—setting up a ‘war room’ to understand exposures and plan responses is invaluable.
We’ve worked in the days following the reciprocal tariff declaration on using this approach to drive cash preservation, optimize supply chains and respond to shifts going on elsewhere along trade routes. Reviewing the effects and impacts also means pricing strategies can be revisited to be effective with these new dynamics.
Key areas of action for the U.S. warehouse market are:
- E2E Should/Total Cost Modeling
- Understand cost structure in detail and how costs are impacted by different scenarios (external, geopolitical, sourcing changes, etc.).
- Supply chain diversification and optimization
- Reconsider supply chain design.
- Seek alternative suppliers, relocate production to less affected markets.
- Be mindful of upstream decisions that may impact warehousing needs (location, size, infrastructure, etc.).
- Look at strategies to keep some value from being added to goods until after import.
- Footprint and operations optimization
- Our proprietary network optimizer balances lease rates, transportation costs, and service speed to help optimize footprint. Options include diversifying real estate footprint—developing multiple smaller regional facilities rather than relying on centralized hubs—and aligning location strategy with evolving trade patterns, prioritizing facilities at ports and nearshoring hubs, suggests the team at Lee & Associates.
- Tax-efficient strategy can also include considering Foreign Trade Zone and expanding bonded warehouse strategy—to defer or reduce duty payments and give greater protection and flexibility as trade policy evolves.
- Technology investments can deliver savings through labor efficiency, space utilization and customer service, but the returns on technology investments are lower now due to higher input prices.
- Improved operational excellence can also help mitigate cost risk by optimizing labor planning, scheduling, productivity, and leveraging artificial intelligence and machine learning.
- Leasing strategy
- Demand levels and weak rent growth mean occupiers can use their current leverage to negotiate flexibility, concessions and expansion rights, according to Lee & Associates.
- The company also suggests structuring leases to enable agility and hedge against uncertainty by using early outs, swing space, and overflow options.
- Space utilization and inventory management
- Efficient use of warehouse space can help reduce overall need and cost of warehousing. This considers the costs of utilities, labor, indirect staff, repairs and maintenance, equipment, and infrastructure—rather than simply evaluating the headline lease costs.
- Optimizing inventory placement and flow improves working capital, helps optimize storage costs and mitigates the risk of obsolete inventory.
Take on the tariff turmoil
The supply chain uncertainty unleashed by the overhaul of tariff levels in the U.S. is having an immediate and direct impact on the warehousing sector. The initial spike in demand has come at a time where market supply is much healthier than two years ago—limiting a pricing squeeze.
How the tariff turmoil will play out longer term is less clear, dependent on how consumers react to price hikes and the broader effect on global economic activity as established trade routes and relationships are redrawn.
That said, the team at Cresa now considers trade policy to be a “real estate variable,” requiring U.S. companies to integrate trade, logistics, and real estate strategy much more closely to remain resilient.
Lee & Associates say they’re helping their clients turn trade volatility into a real estate advantage. “In today’s environment, warehousing strategy isn’t just operational—it’s financial, geopolitical, and competitive. The right location with the right structure can protect margins, improve flexibility, and create room to grow.”
Strategic responses plus agility build resilience, mitigate cost risk and position companies to take opportunities created by tariff changes. These opportunities can be taken advantage of through footprint optimization, better space utilization, sharper leasing strategy, and operational improvement.
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