Are we heading into a Trade War with the US?

As Donald Trump gets stuck into an already eventful second White House term, all countries are trying to digest the implications of his trade policies. So far Australia has not (yet) been singled out for specific ire. We have an open economy and strong trade ties to both the US and China. So, it stands to be significantly affected regardless.

What might this new era of protectionism means for Australia’s main real estate segments?

1. Logistics: A beneficiary of trade wars and supply chain disruption

One of the most immediate effects of renewed trade tensions is likely to be supply chain disruptions. If Trump makes good on his threats to raise tariffs (notably on China), it will force global supply chains to shift yet again. Such disruptions create short-term uncertainty. They could also drive increased demand for logistics real estate within Australia. Businesses seeking to reduce reliance on China might turn to Australia. Making us a key alternative hub in the Asia-Pacific. Increasing demand for manufacturing facilities, industrial warehouses, fulfilment centres, and last-mile logistics facilities. Additionally, reshoring and nearshoring trends could prompt more companies to store goods and components locally. But added tariffs have a flow on effect. Higher costs of imported building materials would raise construction costs. Posing development challenges to the market.

2. Offices: A mixed outlook amid economic uncertainty

Renewed global protectionism under Trump could further challenge Australia’s office markets. Particularly industries closely tied to global trade. Australian exports could face headwinds due to the geopolitical tensions. Industries such as mining and finance could see reduced investment as a result. This could lead to a weaker demand for office space in major CBDs catering to these industries. But if the trade war accelerates, certain industries could benefit. These would include cybersecurity, artificial intelligence, defence, or office markets. Trade uncertainty often leads to a stronger US dollar but also has an impact on capital flows. Australia has a worldwide reputation as a safe haven for global capital. Couple this with a greater buying power of the US dollar means we may attract more capital inflows from foreign investors. Especially those based in the US.

3. Retail: Navigating inflation and consumer confidence

The Australian retail sector is sensitive to global economic conditions. A resurgence of trade war tensions could have profound effects. Tariffs on Chinese imports, for example, would raise the cost of consumer goods, driving inflation and potentially reducing consumer spending power. Retail landlords and shopping centre operators may struggle with weakened occupier demand. Especially if retailers face higher operating costs and declining sales. Luxury retail and discretionary spending could take a hit. Especially if tourism inflows get caught up in the national brinkmanship. While discount retailers and essential goods providers would likely see more resilient demand. On the flip side, the trade war may encourage a stronger push toward domestic manufacturing and local goods. As a result, Australia’s retail supply chains could undergo significant transformation. Retailers shifting to Australian-made products could bring long run benefits to the sector.

4. Residential: Housing and rental markets in a volatile economy

The Trump-led trade war could also have an impact on the residential sector. On one hand, deteriorating economic conditions due to trade disruptions could see consumer confidence drop. Housing affordability could also decline further. On the other hand, increased foreign investment restrictions from the US or China could lead to more capital flowing into the housing markets. Perhaps the most notable impact though could come from the likely inflationary outcome of the trade wars. Affecting the cost of construction materials, project delivery and construction worker availability. These would all deteriorate in a regional or global trade war.

5. Data centres: A potential bright spot amid geopolitical tensions

One of the most resilient real estate segments in the face of trade tensions is likely to be data centres. In a previous article we highlighted the exponential rise in data centre demand – ‘Emerging Segments and the Planning Challenges They Pose’. We can expect demand to be turbo-charged by heightened trade tensions. Especially if Australian companies look to local or regional solutions for their data storage and cloud needs. Cybersecurity concerns stemming from geopolitical conflicts may lead to increased investment in domestic data storage facilities. Meaning businesses will seek to reduce their reliance on foreign servers. Australia’s strategic location in the Asia-Pacific, could further bolster this segment. Coupling this with the Government incentives for technology infrastructure.

Conclusion: Challenges and (some) opportunities for Australian real estate

The new Trump administration's trade policies will bring both challenges and opportunities. Uncertainty in global trade is likely to bring headwinds for the office, retail, and residential sectors. Whereas logistics and data centres could fare better. Investors and developers will need to carefully navigate these shifts. Ultimately, how Australia’s property market adapts in response to an ever-changing geopolitical landscape will depend on certain factors. Such as broader economic policies, international trade agreements, and domestic business strategies. We should ready ourselves for an eventful four years and beyond.