Trade war would create investment opportunities in commercial real estate, KBW says

Construction slowdowns and shifting investor sentiment could boost potential in CRE stocks

Trade war would create investment opportunities in commercial real estate, KBW says

As trade tensions escalate, some real estate investment opportunities could emerge from market disruptions, according to analysts at Keefe, Bruyette & Woods (KBW).

In a client note, KBW managing directors Jade Rahmani and Ryan Tomasello pointed to high-quality commercial real estate stocks that could present buying opportunities amid economic uncertainty fuelled by new tariffs.

Among their top picks are CBRE Group and D.R. Horton, as well as outperform-rated stocks such as Lennar, Jones Lang LaSalle, Ladder Capital, and Starwood Property Trust. Meanwhile, they maintained a market-perform rating for Walker & Dunlop and American Homes 4 Rent.

Single-family rental real estate investment trusts (REITs) are expected to remain a safe haven, benefiting from stable occupancy rates and continued challenges in homeownership affordability. However, homebuilders could see a decline in buyer confidence, coupled with increased costs and potential slowdowns in project timelines due to supply chain disruptions.

KBW analysts warned that additional tariffs could result in construction delays as builders scramble to secure alternative suppliers. Navigating this shifting landscape will likely lead to operational inefficiencies and added expenses.

According to data from the National Association of Homebuilders (NAHB), 64% of a home's construction cost is tied to materials, with 27% sourced from China, 11% from Mexico, and 8% from Canada. The supply chain for key home components is also heavily dependent on imports – over half of household appliances come from China, while 70% of essential sawmill and wood products originate in Canada.

Read more: Canada, US avert trade war – for now

With Canadian lumber accounting for nearly 30% of a home’s construction cost, tariffs could place additional financial pressure on homebuilders. KBW estimates that rising material costs could shrink gross margins by 200 to 300 basis points, with every 100-basis point shift reducing industry earnings by approximately 6%.

Beyond direct cost implications, KBW warns that the psychological impact of tariffs alone could dampen transaction activity among commercial real estate brokers. Investors seeking safe-haven assets may drive down long-term interest rates, potentially triggering a rally in Treasuries.

Make sure to get all the latest news to your inbox on Canada’s mortgage and housing markets by signing up for our free daily newsletter here.