On March 1, the United States and Israel launched strikes against Iran’s military and nuclear infrastructure. This led to attacks across the Middle East, including Lebanon, Israel, Syria and the Strait of Hormuz.
In addition to the death, destruction and defiant rhetoric, this massive conflict has impacted oil prices and logistics, heightening uncertainties.
How is this multi-front war impacting U.S. commercial real estate? Reports from Cushman & Wakefield and Marcus & Millichap suggest that any effects will be indirect. Furthermore, those indirect effects could occur only if the conflict is prolonged.
It’s About the Oil
Cushman & Wakefield’s “Middle East Conflict: Implications for Energy, Inflation and CRE” write-up indicated that the current economic impact “runs primarily through energy prices.” While oil price strikes preceded 10 of the past 10 of 12 U.S. recessions, they “typically contribute to downturns only when combined with tighter financial conditions,” the report said.
Marcus & Millichap’s special report about the Iran conflict added that the Strait of Hormuz carries one-fifth of global oil consumption and global LNG trade, suggesting that “even a minor disruption can quickly influence energy prices and ripple through transportation costs and broader supply chains.”
Adding insult to injury, the Marcus & Millichap report stated that some Gulf states could halt LNG and oil production if the conflict persists. In such a case, restarting operations could take weeks or months, further exacerbating scarcity and higher prices.
At the same time, the U.S. is less exposed to energy shocks than previously, due to increased domestic production. Yet Americans are experiencing higher prices at the gas pumps.
“Higher prices still hurt consumers, but they also support domestic energy producers, partially offsetting the shock over time,” Cushman & Wakefield analysts observed. The Marcus & Millichap analysts agreed, noting that foreign economies are likely to face greater strain due to their dependence on imported oil and shorter days of supply.
Then, There’s the Economy
It’s no secret that oil prices boost inflation. Cushman & Wakefield analysts believe that a “sustained $30 increase would push inflation roughly 0.5% higher.” This, in turn, could mean higher-for-longer federal fund rates, leading to higher bond yields and borrowing costs.
Marcus & Millichap experts pointed out that interest rates could remain volatile as “investors weigh inflation risks against slower growth and safe-haven demand for U.S. Treasuries.”
Higher inflation could lead to higher operating expenses and reduced consumer spending. “Weaker sentiment could add pressure, particularly among middle- to lower-income households,” the report added.
Furthermore, the Strait of Hormuz’s closure impacts more than oil. Marcus & Millichap analysts noted that Hormuz handles 15% of global aluminum exports and approximately one-third of global fertilizer trade, “putting pressure on specific products.” The result could be higher prices across food, manufactured goods and industrial inputs due to higher shipping costs.
Finally, the conflict is creating significant uncertainty, which capital and financial markets dislike. Marcus & Millichap suggested that ongoing and elevated uncertainty could put downward pressure on business confidence, leading to reduced hiring, leasing delays, and a slowdown in GDP growth.
The CRE Impact
Given the U.S. distance from the conflict, immediate commercial real estate impacts aren’t likely. However, “if higher energy prices push inflation higher and delay anticipated interest rate cuts, tighter financing conditions could weigh on capital markets activity in the near term,” Cushman & Wakefield analysts predict.
While geopolitical uncertainty can lead to more selective capital deployment and wider risk premiums, neither report suggested a significant impact. “Real estate has often remained relatively resilient during periods of geopolitical volatility, particularly when income streams remain stable,” the Cushman & Wakefield report said.
It’s possible that less discretionary spending could impact hospitality and non-essential retail. But the Marcus & Millichap experts also suggested that commercial real estate could be an ideal investment choice, attracting “additional investor interest, due to its income stability and diversification, particularly if stocks, private credit or bonds turn more volatile.”
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