Rising geopolitical tensions tied to the war in Iran are beginning to ripple through commercial real estate forecasts, prompting Oxford Economics to modestly downgrade its outlook for the sector.
Energy market disruption and infrastructure damage across the Middle East have pushed oil and gas prices higher, creating a near-term inflation shock that is filtering into real estate fundamentals. While the impact is more pronounced in Europe and Asia-Pacific, the United States is not immune. Oxford now expects the nation to see GDP growth of roughly 2.5% this year, down from 2.8%, and has trimmed its 2026 CRE capital value growth forecast by 40 basis points to 1%.
The firm emphasized that the United States remains relatively insulated due to its energy position and a more flexible monetary policy backdrop. It expects the Federal Reserve to prioritize labor market stability, with rate cuts of about 50 basis points this year, though long-term yields are likely to stay elevated.
Still, CRE faces a dual pressure. Weaker occupier demand tied to slowing growth and higher inflation, alongside rising bond yields that erode real estate's relative appeal. Oxford noted that higher energy costs are already feeding into consumer prices, squeezing real incomes and dampening business confidence. The result is softer leasing activity and reduced ability for landlords to push rents.
Sector impacts vary but skew negative in the near term.
Consumer-facing sectors such as retail and residential are among the most exposed, as household budgets tighten. Retailers, particularly in secondary locations, may struggle to sustain occupancy costs amid weaker foot traffic, though prime assets retain some pricing power.
Industrial and logistics properties continue to benefit from long-term tailwinds like e-commerce and supply chain shifts, but rising fuel and transportation costs are expected to compress margins and slow leasing momentum.
Hotels face a split outlook. Higher airfares tied to rising jet fuel costs are likely to weigh on international travel and urban RevPAR, while domestic leisure destinations should prove more resilient and rebound quickly if conditions stabilize.
The office sector remains under the greatest strain. Already contending with structural shifts, it now faces an added cyclical drag from weaker hiring and business confidence. Oxford expects office capital returns to hover near -1% this year, with rent declines extending into 2027.
Despite the near-term downgrade, Oxford's five-year outlook remains largely intact, with recovery expected beyond 2027. In the meantime, the firm sees a stronger case for income-focused strategies, with long, indexed leases better positioned to navigate a higher-inflation environment than assets reliant on short-term rent growth.
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