The war in Iran is beginning to ripple more forcefully through financial markets, raising new concerns about borrowing costs just as commercial real estate was hoping for rate relief.
A new risk is emerging: the potential for base financing rate increases tied to ongoing geopolitical uncertainty, according to PERE. While movements in U.S. Treasury yields have been relatively modest so far, they remain elevated compared to earlier this year, complicating expectations for rate cuts and adding pressure across CRE markets.
The 10-year Treasury yield stood at 3.95% on February 27, 2026, the day before U.S. military action began, and climbed to 4.438% by March 27. It has since eased to 4.26% as of April 20, though that still reflects a higher baseline than earlier in the year and sits roughly in line with mid-February levels. Shorter-term yields tell a similar story. The 5-year Treasury was 3.86% on April 20, down from a March peak of 4.10% but still above any level seen between January 1 and February 27. The 2-year yield, now at 3.73%, shows an even sharper increase compared to early-year levels.
Those persistently higher baselines, combined with inflation concerns tied to rising energy prices, have halted expectations that interest rates would fall this year. That shift is already creating unease in CRE capital markets.
"We are seeing some quirky things in the market," Brian Klinksiek, global head of research and strategy at LaSalle Investment Management, told PERE.
"Some sellers are pausing and hoping [the increased cost of debt] will subside with a resolution to the war, so it doesn't impact their proceeds. Some lenders have pulled out of processes we wouldn't have expected them to. As a seller or borrower, this can all make things a little choppy."
Credit markets are also showing signs of strain. Spreads for AAA-rated CMBS widened by 16 basis points in the month following the start of U.S. and Israeli attacks, while BBB-rated spreads jumped by 100 basis points, according to PERE. Even so, that increase remains about half of the spike triggered by the "Liberation Day" tariff announcements in 2025.
The financing uncertainty adds to a growing list of CRE pressures tied to the conflict. Supply chain disruptions are already influencing real estate decisions. In early April, Savills Vice President and Head of Industrial Research Mark Russo told GlobeSt.com that rising logistics costs could reshape demand patterns.
"Depending on the duration of the conflict, this could impact location decisions, prompting companies to choose warehousing sites closer to consumers and increasing demand for urban logistics," he said.
At the same time, higher energy prices and new tariffs are driving up construction costs, compounding challenges for a sector still recovering from pandemic-era disruptions and prolonged inflation. The conflict has pushed up prices for key inputs such as diesel and aluminum, leaving developers and contractors struggling to make projects financially viable.
Together, elevated rates, widening credit spreads and rising operating and construction costs are adding volatility to a market that had been looking for signs of stabilization.
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