Retailers Hesitate To Sign Leases As They Digest Tariff Impacts

Robin Abrams had been in on-and-off negotiations for more than a year to sign a grocery store to a 7K SF lease for retail space on Manhattan's Upper East Side. Until Tuesday.

That's when Abrams, the vice chairman for retail at Compass in New York City, learned that the grocer had backed out of the deal, citing concerns over rising costs of food and materials to build out the store.

As more retailers come to grips with the impact of sweeping new tariffs, Abrams is concerned that plenty of other potential tenants might make similar U-turns.

“I do think it will change, but I think there will be some pullback,” she said. “Let’s hope it improves.”

It has been three weeks since President Donald Trump sent markets into a tailspin with the announcement of the most aggressive tariff regime in nearly a century of U.S. trade policy.

Stock prices and bond yields have been jittery ever since, and consumers are already starting to slow their spending as they anticipate rising costs. And while real estate historically moves slower than other asset classes, retail market watchers say the tariffs and broader economic concerns are already making would-be tenants hesitant to commit to leases.

Abrams said she has seen a slowdown in retail leasing negotiation since March, when tariffs transformed from a campaign promise to a real-life premise for markets. Since Trump announced a 10% across-the-board tariff for most countries, pending negotiations, and a 145% tariff on goods from China, deals have only slowed further, she said.

“It's leading to some retailers pulling back and hesitating to make long-term commitments, in part because tariffs are affecting their costs and their ability to manufacture and import items and not have to raise their pricing based on their increased costs,” she said.

According to a November study from the National Retail Federation, a universal tariff somewhere between 10% and 20%, plus an additional 60% to 100% tariff on China, would result in American consumers losing between $46B and $78B in spending power.

“Unfortunately, with the latest tariffs on China totaling more than 145%, the cost increases to everyday goods and the overall economic impact on American families will be even greater,” NRF Senior Manager for Media Relations Will Granados said by email.

Apparel prices could jump by 30% by the end of the year due to tariffs, according to Moody’s data shared with Bisnow, while food and beverage prices could jump by 6.4%. By the end of 2026, if the tariffs stay in place, Moody’s projects that apparel will cost 74% more than it does now, food and beverages 13.3% more and housing 5.2% more. 

Retailers are already warning that extra costs will be passed on to customers. Executives at big-box stores Best Buy, Walmart and Target have already set public expectations that their prices will increase. 

In some cases, tariff surcharges have already found their way onto price tags, like at Hastings Bath Collection, which makes bathroom fixtures like vanities and imports most of its materials from Europe.

“Given the premium nature of our products, we felt that passing the full cost along could negatively impact our customers and sales,” Bob Gifford, Hastings Bath Collection director of business development, said in a statement. “As a result, we’ve made the decision to absorb half of the tariff and apply only a 5% surcharge to help offset the impact.”

Brokers said apparel, home goods, electronics, auto retailers and restaurants are all expressing tariff-related hesitation to sign leases.

Some are pushing ahead as planned, Miller Walker co-founder Bill Miller said, like a Brazilian leather goods retailer he is representing. Others are planning pivots, like restaurants switching from French wine to vintages from California.

Ed Beeh, SRS Real Estate Partners managing principal for Phoenix, said that in a recent meeting with 13 of his brokers, he heard the wide-ranging impacts the new policy moves are having.

“None of the larger retailer clients have done anything drastic, but they mentioned they did lose a few deals here and there, or a few deals were put on pause — primarily from local or mom-and-pop-type retailers,” Beeh said.

All retailers are nervous about being seen to be the first to raise prices on customers, meaning that even larger operators aren’t necessarily full steam ahead, Beeh said. 

“We represent quite a few national retailers,” he said. “It’s, I want to say, business as usual, but they're watching it. They're concerned.”

Nationally, retail vacancy rose by 20 basis points to 5.5% at the end of the first quarter, according to Cushman & Wakefield, with absorption dropping by 5.9M SF as several large retailers filed for bankruptcy during the period.

But average asking rents increased by 2.3% year-over-year, and retail vacancy is so tight nationally that even if one tenant vacates, the spot is likely to get snapped up quickly, Beeh said.

“If there is a hiccup or a pause, I don't think there's a huge exposure to a major correction, at least on the landlord side,” he said. “Inventory is pretty light.”

Consumer sentiment seems resilient enough to swallow some price hikes at present, Piper Sandler Managing Director and Senior Research Analyst Alexander Goldfarb said. As long as jobs hold steady, he doesn’t see that changing.

“That lack of supply with very little in the way of new development ... means that the majority of retailers that need to grow have to take whatever is available,” he said. “That’s hugely positive for the retail REITs. So that’s a big game-changer this time that the industry thankfully has, versus if this was a normal environment where there was a lot of supply.”

But at the moment, most landlords — like their would-be tenants — are stuck in limbo. The U.S. is now 20 days into Trump’s 90-day pause on his self-described “reciprocal” tariffs, and no one is sure where the numbers will end up. That’s a headache for retailers, landlords and brokers alike.

“Being a broker, the best answer is ‘yes,’” Miller said. “The second-best answer is ‘no,’ and the worst answer is ‘maybe.’”