March 14th, 2025
Tariffs have continued to unsettle markets this week, with growing concerns around consumer sentiment showing signs of caution for the first time in months. During Costco’s earnings call, CFO Gary Millerchip noted that shoppers are becoming "very choiceful," with the potential for "the impact of some return of inflation and the possible effects of tariffs." In a podcast with the Wall Street Journal, Chad Bown, senior fellow at the Peterson Institute for International Economics, explained that the tariffs introduced during President Trump's first term failed to deliver the expected benefits to the U.S. economy. He pointed out that foreign companies did not bear the brunt of the tariffs as anticipated; rather, the American consumer bore the costs. Furthermore, U.S. manufacturing did not see significant gains, as cost increases on parts and components used in production outweighed any potential advantages. Additionally, we are in uncharted territory, as previous tariffs have not so aggressively targeted key allies and close trading partners.
Krish Vengat, VP at consulting firm GEP, which tracks demand conditions through a monthly survey of 27,000 businesses, mentioned this week that "With tariffs driving uncertainty, U.S. manufacturers are racing to secure materials, while Canadian and Mexican suppliers are feeling the squeeze from weaker export demand." Investors appear increasingly cautious, as signs of slowing economic growth, geopolitical tensions, and inflationary pressures linked to tariffs contribute to heightened uncertainty.
The S&P has declined by 8% over the past month, while the Nasdaq has fallen over 11%. The 10-year U.S. Treasury yield dropped to as low as 4.10%, but has since bounced back slightly to its current level of 4.31%.
On a more positive note, the Mortgage Bankers Association (MBA) forecasts a rise in commercial and multifamily mortgage originations, expecting them to reach $583 billion in 2025, up from an estimated $503 billion in 2024. For multifamily, they project a 16% increase, reaching $361 billion in 2025, up from $312 billion in the previous year. Momentum is expected to continue into 2026, with multifamily loan originations projected to reach $419 billion. Additionally, CBRE’s "2025 Global Investor Intentions Survey" revealed that U.S. investors are increasingly attracted to real estate, with favorable pricing being a key factor driving investment. While investor sentiment in the U.S. has become more cautious since the survey, due to concerns that interest rates may remain higher than initially anticipated, capital continues to flow into the real estate sector. CBRE has observed a steady increase in bidder activity month over month, supported by continued economic and job growth, which bodes well for real estate fundamentals.
This optimistic sentiment is also apparent in the office market, where Blackstone appears to be actively pursuing core office properties in New York and San Francisco. For context, in 2024, $8.4 billion in CMBS loans were originated for office deals at a 13.4% debt yield, and in Q1 of 2025, office CMBS originations have already reached $6.6 billion, with a 10% debt yield—demonstrating a significant shift in a short period.
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