The evolving tariff environment between the United States and Canada is creating a new set of considerations for businesses, investors and commercial real estate (CRE) markets across North America. While tariffs can increase costs and introduce uncertainty, their impact is unlikely to be uniform. Instead, the effects will vary considerably by geography, industry and the composition of regional trade.
A new report from Cushman & Wakefield examines this dynamic, highlighting an important distinction between tariff exposure and economic vulnerability. The research also explores how changing trade patterns could influence demand for manufacturing, logistics and industrial real estate.
Tariff Exposure Varies Significantly by Market
U.S.-Canada trade is deeply integrated, with bilateral trade in goods and services exceeding $870 billion annually. However, Cushman & Wakefield finds that a market's tariff exposure depends less on its total volume of trade and more on the types of products it imports.
In the United States, Maryland, Kentucky, Texas and Michigan have some of the highest tariff-weighted exposure levels, largely because of their concentration in products such as aluminum, automobiles and auto parts. Approximately two-thirds of U.S. states have exposure above the North American average.
Canada presents a different picture. Ontario stands out for its exposure because of its extensive automotive, machinery and metals supply chains, while other provinces generally rank below the North American benchmark.
Exposure and Economic Vulnerability Are Not the Same
High tariff exposure does not necessarily mean that tariffs pose an equally significant risk to a regional economy.
Many highly exposed U.S. states have relatively low levels of bilateral imports compared with the overall size of their economies. Maryland's bilateral imports represent approximately 0.6% of state GDP, for example, while the figure for Texas is approximately 1.5%.
Several Canadian provinces are considerably more dependent on U.S. trade. Bilateral imports represent approximately 32% of GDP in Manitoba, 24% in New Brunswick and 26% in Ontario.
The distinction is significant for CRE investors and market participants. A region can have substantial exposure to tariffed products without those products representing a major portion of its broader economy. Conversely, a market with more moderate tariff concentration could face greater economic consequences if cross-border trade represents a larger share of economic activity.
Potential Implications for Commercial Real Estate
For CRE, tariffs represent an additional source of cost and demand pressure rather than a single determinant of market performance.
In the United States, tariffs could reinforce incentives for companies to onshore production, diversify supply chains and maintain larger inventories. Those shifts could create additional demand for manufacturing and logistics facilities in select markets.
Similar adjustments could occur in Canada as businesses seek to diversify suppliers, increase domestic production or reduce their dependence on U.S. imports.
Industrial real estate may be particularly sensitive to these changes. Manufacturers and third-party logistics providers could respond by increasing inventory levels, diversifying sourcing and making greater use of inland distribution centers, bonded warehouses and other facilities that provide flexibility in managing cross-border trade.
The result may not be a straightforward increase or decrease in industrial demand. Instead, tariffs could reshape where demand occurs and what types of properties occupiers require.
Development Costs Remain Another Consideration
Tariffs can also affect the supply side of commercial real estate. Higher costs for construction materials, machinery and other inputs can make new projects more expensive and potentially reduce development feasibility.
This could contribute to a more selective development environment, particularly for projects where higher material and financing costs make projected returns more difficult to achieve.
For existing property owners, however, more constrained new construction could ultimately limit competing supply in certain markets and property sectors.
What CRE Market Participants Should Watch
The longer-term implications will depend heavily on whether today's tariff environment leads to a lasting restructuring of North American supply chains.
Onshoring, domestic manufacturing investment and changing inventory strategies could create new sources of real estate demand. Alternatively, if tariffs primarily result in higher costs and weaker capital investment, the effects could be more challenging.
Canada's efforts to diversify trade relationships beyond the United States will also be important, although Cushman & Wakefield notes that such a transition is likely to be a medium- to long-term process.
Finally, the direction of U.S. trade policy, the U.S. midterm elections and the future of the Canada-United States-Mexico Agreement (CUSMA/USMCA) could materially influence the trajectory of the current tariff environment.
For borrowers, investors and developers, the key takeaway is that tariff risk should be evaluated at the market and asset level. The composition of local industries, dependence on cross-border trade, construction costs and potential changes in supply chains may ultimately matter more than headline tariff rates alone.
For additional analysis and market-level data, read Cushman & Wakefield's full report, “The Scale of It All: Updates on the Most Recent U.S.-Canada Tariffs.”