New shifts in U.S. trade policy are escalating financial pressures on the commercial real estate (CRE) construction sector, according to the latest research from Cushman & Wakefield. The firm projects that new tariffs on imported building materials will cause materials costs to rise by an average of 9% in 2025, leading to a 4.6% increase in total project costs in the fourth quarter compared to the prior year.
This cost spike, which is isolated from other market factors like labor and supply/demand fundamentals, adds significant uncertainty to a market already challenged by high interest rates and cautious lending.
Data centers face steepest increases
The hardest-hit projects are those intensive in metals, with steel, aluminum, and copper facing tariff rates up to 50%.
Data centers are particularly vulnerable due to their heavy reliance on copper. Cushman & Wakefield notes that some large data center facilities require as much as 50,000 tons of copper per site, exposing them to the largest degree of tariff-driven inflation.
“Construction pipelines were already thinning due to high interest rates, cautious lending, and supply/demand fundamentals,” James Bohnaker, senior economist at Cushman & Wakefield said. “Tariffs add another layer of uncertainty, amplifying cost pressures and complicating decisions for developers, contractors and occupiers.”
Key findings and mitigation strategies
The report highlights that tariff-driven cost increases for materials range from 8.5% to 9.6% depending on the property type, with metals accounting for up to two-thirds of the overall tariff-driven increases.
With approximately 40% of CRE construction materials imported—primarily from Canada, Mexico, and the EU—construction stakeholders have limited options for immediate relief. U.S. production capacity cannot currently meet demand for key inputs like copper and aluminum, and building new domestic facilities would take years.
Cushman & Wakefield advises that an estimated 75% of these tariff costs will be passed through to end-users, meaning contractors, developers, and tenants will ultimately absorb the majority of the financial burden.
To mitigate risk, the firm urges developers to adopt proactive and flexible strategies:
- Diversify procurement channels to reduce reliance on heavily tariffed sources.
- Consider prefabricated systems to streamline construction and reduce material waste.
- Engage project management experts to aggressively manage risk and cost overruns.
“Trade policy uncertainty is proving just as disruptive as the tariffs themselves,” Bohnaker added, emphasizing the need for developers to strategically plan and build flexibility into project underwriting.
