The recent U.S.-China rhetoric may turn out to be just that, but let's envision what such a war might do to commercial real estate. We can consider potential impacts by economic sphere: micro and macro.
The Federal Reserve’s recent meeting minutes echo the concerns of most economists: that a full all-out trade war would be very likely to trigger a recession—or at minimum, a significant economic slowdown.
The channels through which this happens also are pretty clear. Higher pricing on imports generates goods price inflation that reduces consumption. With retaliation, domestic production would see a decline in exports and a mixed impact from replacing lost imports. Any significant increase in production for domestic consumption would likely require new capital investment, involving robots, automation and few if any new jobs.
So the Fed Reserve finds itself in a dilemma. It has little room to lower rates to help the economy, and will remain under pressure to keep raising rates to offset the growing trend in price inflation.
Any recession—like all recessions—would likely hit all commercial real estate sectors, as well as residential housing.
Here the impacts would be far more focused—in this case, on the vast market for U.S. warehouse buildings that are part of every country’s global supply chain. If the country moves toward autarky, away from open trade, corporations would be forced to abandon their existing supply chains for greatly shortened ones that focus on domestic sources of materials and parts, and domestic markets. Two pieces of recent CBRE EA research have shed light on the likely real estate impacts of such dislocations:
“What trade barriers might mean for U.S. warehouse demand” (1/12/17) shows that imports generate most of the demand for warehouses; exports generate much less. This is because imported goods must be landed, stored, transshipped and distributed, while exports generally go directly from domestic factory to port.
“Industrial automation may reduce net demand for industrial space” (5/18/18) shows that automation tends to lead to less overall industrial and warehouse space demand. Any resurgence in U.S. manufacturing to replace imported goods would likely involve greater automation which could well reduce, rather than increase, the absorption of factory space and warehouses.
It’s pretty clear that globalization and the creation of intricate and extensive international supply chains have fueled growth in the U.S. warehouse market for the past 25 years. Any reversal of the trend would likely create an especially serious reversal for industrial, among all other space markets.