Building Amid Disruption: Real Estate Faces Supply Chain and Tariff Pressures

In the world of real estate development, timing and budgeting are crucial. Yet, as we progress through 2025, global supply chain disruptions and escalating tariffs are introducing unprecedented challenges. From container shortages to material delays, these issues are not just logistical inconveniences; they're reshaping the financial realities and strategic outlooks of developers and investors alike.

For real estate investors, understanding the scope of these disruptions is essential. These constraints are no longer short-term bottlenecks that can be sidestepped with minor scheduling tweaks. Instead, they represent systemic shifts that are influencing everything from underwriting assumptions to yield expectations.

As projects face increasing cost pressures and longer delivery timelines, investors must reevaluate risk profiles and return strategies to stay ahead in this dynamic market.

The Current Landscape

Global supply chains are experiencing significant upheaval. The Red Sea crisis has forced many shipping companies to reroute vessels around the Cape of Good Hope, adding weeks to delivery times and increasing costs substantially. According to S&P Global, freight rates from Asia to Europe have surged by over 40% year-on-year in early 2025.

Simultaneously, the Panama Canal is grappling with one of the worst droughts in decades, reducing the number of daily transits and creating long backlogs for cargo ships. This has disrupted material flows to U.S. Gulf and East Coast ports, particularly impacting construction hubs like Houston and Miami.

In the wake of these disruptions, lead times for critical construction materials such as HVAC systems, steel framing, and electrical panels have extended significantly. Developers are finding it increasingly difficult to adhere to traditional project timelines, forcing many to reevaluate their construction sequencing and procurement strategies.

Tariffs Compounding the Issue

While delays alone are problematic, they are now being compounded by new tariff structures. In a bid to protect domestic industries, the U.S. government reinstated a 25% tariff on imported steel and aluminum in March 2025. This move, while politically popular, has driven up the cost of raw construction materials according to the National Association of Home Builders (NAHB).

Further pressure looms from the potential reimposition of higher tariffs on Canadian softwood lumber, a key material for multifamily and residential construction. With no clear trade agreement in place, lumber prices are already trending upward.

For developers, these rising input costs are translating into tighter margins and more conservative underwriting. Budget contingencies that once covered minor cost overruns are now being overwhelmed by escalating material expenses. This is particularly problematic for affordable housing projects, where financial feasibility often depends on strict cost control.

Impact on Real Estate Development

The effects of supply chain disruptions and tariffs on real estate development are both direct and cascading. Here are some of the most critical areas being impacted:

● Project Delays: Multifamily housing starts have seen significant slowdowns. Developers are postponing projects, awaiting more favorable conditions.

● Budget Overruns: The increased cost of materials, from steel to lumber, is pushing budgets beyond initial estimates. This is particularly challenging for affordable housing projects, where margins are already tight.

● Supply Chain Reassessment: Developers are re-evaluating their supply chains, seeking alternative sources or considering nearshoring options to mitigate risks.

Strategies for Mitigation

To navigate these challenges, developers are implementing a range of strategic adjustments. These include:

1. Early Procurement and Warehousing: Some developers are pre-purchasing critical materials early in the project lifecycle and warehousing them locally to avoid last-minute delays and price spikes. This ties up capital early, but provides greater timeline certainty.

2. Supply Chain Diversification: Reducing reliance on single suppliers or overseas manufacturers is becoming a top priority. Developers are sourcing materials domestically or from multiple geographies to spread risk.

3. Alternative Building Methods: Modular and prefabricated construction is gaining traction as a way to compress build schedules and mitigate onsite labor disruptions.

4. Insurance and Contingency Planning: Developers are working more closely with insurers to manage risk exposure and adjusting contingency budgets to reflect new market realities.

Looking Ahead

The combination of global supply chain instability, trade policy shifts, and inflationary pressures is creating a complex environment for real estate development in 2025. These disruptions are not going away quickly. Instead, they signal a new normal, one that demands flexibility, creativity, and vigilance from both developers and investors.

With timelines stretched and costs climbing, projects that succeed will be those with strong foresight, diversified sourcing, and adaptable financial models. For investors, this means asking sharper questions during due diligence, paying closer attention to the assumptions baked into project budgets, and partnering with experienced firms that know how to manage through volatility.

At Makaan Investment Group, we remain committed to helping our investors understand and navigate these challenges. Through transparent communication, strategic planning, and adaptive investment strategies, we ensure our projects remain resilient in the face of evolving global risks. Schedule a consultation today to learn how we’re managing through these supply chain pressures, and how you can too.