Thought Leadership: Mike Yungerman on the Impact of Tariffs

Mike Yungerman, Executive Vice President & General Manager, was among a handful of Chicago-based CRE leaders who participated in a panel discussion hosted by NAIOP Chicago. The focus of the discussion was the impact of tariffs on development, construction and leasing. Following is an overview of Mike’s remarks.

When asked if tariffs are having a direct impact on demand and decision-making around investments, Mike stated that “there was already uncertainty in the market due to high interest rates leading to a higher cost of goods, higher exit cap rates and a reduced YOC spread.” Tariffs, he said, have added and continue to add to that uncertainty. Uncertainty in commercial real estate can be interpreted as risk, so despite continued low vacancy rates and a lack of speculative construction – both of which typically drive investments – investors remain are cautious.

For our part as a developer, said Mike, “We’ve gotten ahead of the risk and mitigated it as best we can.” Among the ways we’re doing that is by leaning into our design-build approach, including working with our sub-contractors and suppliers to “identify the most volatile supplies and pre-order materials in bulk.” In this way, we and our subs and suppliers share the risk if a project doesn’t advance, but we also lock in today’s pricing, which protects us against potential future price increases.

Asked which geographic markets are seeing the greatest negative impact from tariffs, Mike stated, “The Midwest is seeing the most pauses on space searches,” with “occupier hesitancy leading to requests for shorter lease durations.” Mike added that our offices in the west and southwest are starting to experience “a big influx of activity due to nearshoring,” and he is starting to see that taking effect in the southeast as well.

As for how we’ll move forward in these times of uncertainty, Mike indicated that we’ll continue to “categorize the risk, evaluate alternatives, understand costs and decide whether committing early makes sense.”