A fog of uncertainty hangs over the investment landscape, pushing investors to seek alternatives outside traditional asset classes. According to Accordant Investments, a potent mix of tariffs, ongoing inflation and unpredictable interest rates is directing significant attention toward commercial real estate assets.
The run-up to 2025 has seen equity markets teetering at overvalued levels, with price-to-earnings ratios rivaling those observed during only two other moments in the past 150 years: the frenzied dot-com bubble between 1999 and 2000 and the post-pandemic surge in 2021. Each of those periods, analysts recall, ended with a “meaningful” correction that rattled markets.
The economic backdrop is anything but stable. As the year began, credit card delinquencies spiked and inflation began to slow, yet expectations for persistently high inflation remained. Market volatility soared alongside major shifts in global trade policy. Within this unpredictability, the CRE sector was already showing signs of a rebound. Valuations fell to realign with prevailing interest rates, new development starts were scarce, and there was a firm demand and supply balance. Transaction volumes were “relatively healthy,” with projected returns holding steady or even exceeding historical averages—even as the Bank of America Global Fund Manager Survey found that investor sentiment was at its most bearish in decades.
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Accordant Investments noted that private real estate faces a wide spectrum of potential outcomes shaped in large part by inflation expectations. On the upside, property values may rise with increased replacement costs, especially as tariffs make essential building materials, such as steel, aluminum, and copper, more expensive. These increases can also fuel rental growth. Still, higher inflation simultaneously raises operating costs, cutting into net income. Yet, history shows that inflation can also draw investors to assets like CRE, which historically generate steady income and have strong appreciation potential.
The surge in replacement costs—driven by tariffs or supply constraints—will likely result in fewer new projects that can “pencil out” as profitable, according to Accordant. That curbs new supply and may ultimately favor the performance of existing CRE portfolios.
Meanwhile, leading economists from major businesses foresee negative short-term impacts from higher tariffs, including an elevated risk of recession. Such economic headwinds could pressure parts of the private CRE market. However, there are still “pockets of optimism," Accordant said. If tariffs spur deflation or reduce demand enough, it could prompt the Federal Reserve to cut interest rates, lowering financing costs and narrowing the gap between current and historical cap rates.
If a healthy balance between supply and demand persists, real estate investors are positioned to benefit. Solid fundamentals suggest that CRE could gain further ground, especially if rising tariffs drive up construction expenses and tamp down new supply. With its income generation, low correlation to more traditional asset classes, and inflation sensitivity, CRE stands out as a “stabilizing force within multi-asset portfolios,” according to Accordant Investments.
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