While CRE leaders are optimistic about 2025, clear headwinds emerging from escalating construction costs and trade policies threaten to slow development activity and increase strain on industry stakeholders. These challenges demand coordinated efforts between policymakers and the private sector to stabilize costs, address labor shortages, and promote balanced trade measures.

Market & Financial Headwinds in CRE Construction

• The commercial construction sector is facing mounting challenges that could reshape its trajectory.

• Labor Shortages: Baby boomer retirements are thinning the skilled workforce, with an estimated 5.4% of construction workers aged 65 or older and poised to exit the industry.

• Simultaneously, a larger share of young adults is pursuing college over the trades, creating a gap in new talent pipelines. Overall, the national number of job vacancies in construction has doubled between 2017 and 2023. (ConnectCRE, Jan. 2 | Construction Dive, Jan. 2)

• Rising Capital and Material Costs: Construction loans are difficult to get and relatively expensive, with interest rates hovering above 8%, while material costs remain elevated due to inflation and lingering tariffs on construction imports like lumber, steel, copper, and cement. (ConnectCRE, Jan. 2)

Tariff Proposals

• Recent trade and policy developments could exacerbate these challenges.

• Trump Administration’s Tariff Proposals: President-elect Trump has proposed sweeping tariff increases, including a 60% tariff on Chinese imports and an additional 25% tariff on goods from Mexico and Canada.

• These measures could raise U.S. tariffs to their highest levels since 1934 and result in an $800 billion annual increase in tariffs across markets, according to PwC estimates​​. (Barron's Jan. 3, Construction Dive)

• Steel Supply Chain Disruption: President Biden’s decision to block Nippon Steel’s acquisition of U.S. Steel has raised concerns about the future of one of America’s largest steelmakers.

• The acquisition would bolster U.S. Steel’s production capacity and supply chain stability with investments such as $2.7 billion in capital for aging U.S. steel plants, a shared $500 million annual research & development budget, and the transfer of cutting-edge blast furnace technology to U.S. Steel.

• With construction being the primary steel-consuming sector, accounting for over 50% of steel consumption, U.S. Steel's uncertain trajectory could pose challenges for steel-dependent CRE projects. (The Washington Post, Jan. 3 | The Wall Street Journal, Jan. 3)​​

Office Markets & Return to Work

• The U.S. office market faces a stark divide: while overall vacancy rates remain high due to aging buildings and remote work policies, demand for top-tier office space with modern amenities is surging in major cities. (Axios, Jan. 10 | WSJ, Jan. 7)

• Tenants occupied 22% more premium office space in late 2023 compared to pre-pandemic levels, according to CBRE. (WSJ, Jan. 7)

• Many outdated buildings have the potential for conversion to residential use, while landlords of premium properties have regained leverage, scaling back tenant concessions for the first time in four years. (WSJ, Jan. 7)

• JPMorgan Chase may soon require all employees to return to the office. This move follows a growing trend among major corporations, including Amazon, AT&T, and Walmart, that are ending remote work and returning to pre-pandemic office norms. (Axios, Jan. 1 | Forbes, Jan. 9)

• RER Board Member Scott Rechler (Chairman & CEO, RXR) highlighted stronger office markets, despite vacancies, and increased transactions and property conversions for New York City in 2025 this week on CNBC’s Squawk Box. (CNBC Squawk, Jan. 8)

As rising costs and shifting policies reshape the CRE landscape, RER is committed to working with policymakers to stabilize material costs, innovate solutions to labor shortages, and adjust trade policies to avoid disproportionate impacts on the CRE sector.