Tariffs, Inflation, and Real Estate: A Deep Dive into Today’s Economy with K.C. Conway
In a fast-moving episode of America’s Commercial Real Estate Show, the show’s host sat down with renowned economist K.C. Conway to unpack what’s happening in today’s economy—and what it all means for commercial real estate. With topics ranging from tariffs and inflation to the fallout from government spending cuts and shifts in consumer confidence, the conversation offered a sobering yet insightful view into what lies ahead for investors, developers, and industry professionals.
Tariffs: Strategic Moves with Wide-Ranging Impact
The conversation kicked off with a timely and complex topic: tariffs. As Conway explained, President Trump’s new round of tariffs, slated for implementation in April, are far more strategic than many initially realize. While on the surface it may appear that Mexico and Canada are in the administration’s crosshairs, the real targets are China and Europe. Conway pointed out a loophole in “Trump Tariffs 1.0” that allowed foreign manufacturers to sidestep tariffs by moving final production steps to tariff-exempt countries like Mexico. This time, Trump is aiming to close that loophole.
What’s the result? A potentially massive impact on U.S. manufacturing, particularly the automotive sector. With major players like BMW, Mercedes, and VW operating plants in the southern U.S., any disruption in supply chains could ripple through jobs and production.
Inflation, the Fed, and Consumer Behavior
From there, the discussion shifted to inflation. Tariffs on steel and aluminum could sharply raise construction costs—especially for industrial buildings, which rely heavily on metal. Conway estimates steel-related components could spike by 25–35%.
In response, consumers are already pulling back. Confidence levels have plummeted, and spending is down across the board. Conway cited University of Michigan data showing a 27% drop in consumer confidence in just 90 days, adding that many are postponing big purchases like new vehicles.
On the policy side, the Federal Reserve appears unwilling—or unable—to help. Conway noted growing tension between Trump and Fed Chairman Jerome Powell, with the Fed reluctant to cut interest rates amid rising inflation.
D.O.E. Cuts and Government Job Losses
A particularly urgent issue raised was the massive reduction in government spending—referred to in shorthand as “Doge” during the interview. Trump’s moves to eliminate entire departments (like Education) and shrink others (like the CDC) could result in the loss of 400,000 to 600,000 federal jobs, pushing unemployment well above 5%. Conway warned of downstream effects on state-level funding, university programs, and tourism, especially in states that depend on federal contracts or programs.
Sector-by-Sector Real Estate Outlook
Despite the challenges, Conway sees bright spots across several real estate sectors:
✅ Industrial
Still in demand, especially for warehousing and distribution. New construction may slow due to cost, but occupancy remains strong.
✅ Multifamily Housing
With single-family homes increasingly unaffordable and supply limited, multifamily remains resilient. Lower delivery volumes in 2025 could drive rents higher and make sub-6% cap rate deals more attractive.
🟡 Retail
The “big box apocalypse” is over, but small-box retail (e.g., pharmacies, bank branches) now faces challenges. Conway sees opportunity in repurposing these smaller footprints for clinics, offices, and service providers.
🟡 Office
High-rise urban towers remain risky, but Conway is bullish on suburban and mid-rise office buildings. Many are trading well below replacement cost, especially in high-growth Sunbelt markets like Orlando and Miami.
🟡 Hotels
Destination hotels are thriving, while convention-centric urban properties lag. As capex-heavy assets, they require strategic repositioning, especially in tax-heavy states like Colorado.
Regional Migration and Market Opportunities
One of Conway’s favorite tools? The annual U-Haul migration report. As more people leave high-cost, high-regulation states like California and New York, Sunbelt and Midwest states are the big winners. Markets like Texas, Georgia, and the Carolinas are experiencing job growth, population inflows, and corresponding real estate opportunities.
Conway also highlighted the financial sector’s explosive growth in Dallas, which may soon rival New York as the country’s financial capital.
Advice for Investors: Be Patient, Be Flexible
As a final note, Conway urged real estate professionals to avoid overreacting to economic swings. In his words, “We don’t know what hand we’re playing until Trump deals the cards.” With frequent policy shifts and regulatory surprises, Conway recommends staying close to your capital partners and banking relationships, and being ready to pivot.
The Takeaway
This episode made one thing clear: we’re in a time of recalibration. Between aggressive tariffs, a hands-off Fed, government cutbacks, and shifting migration patterns, the commercial real estate landscape is in flux. But as K.C. Conway emphasized, there’s still opportunity—for those who do their homework, stay nimble, and invest strategically.
Whether you’re in retail, industrial, housing, or office, 2025 is shaping up to be a year of both challenge and transformation.