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Middle East tensions could prolong elevated inflation, CRE investors told
ConnectCRE said office absorption stayed positive for a ninth straight quarter in Q2, while apartments saw vacancy rates fall amid the inflation risk backdrop.
ConnectCRE discussed how the U.S. may remain stuck in an elevated inflation cycle even after June CPI improved to 3.5%, citing the risk that renewed Middle East tensions could push prices higher again. In a video, Vice President John Chang warned that an extended period of higher prices could sustain inflationary pressure and raise the likelihood of a federal interest rate hike by the end of the year.
Chang also pointed to other inflation components, noting that food, housing, and medical care were running in the 2 to mid-3% range, while energy prices could keep headline inflation elevated by affecting transportation and related costs. He said this matters for commercial real estate because energy-driven inflation can feed into broader cost pressures.
On rates and financing, Chang said the risk from potential rate increases is already reflected in Treasury and lending rates, which he argued could help keep the cost of debt capital relatively stable. He added that commercial real estate can offer some inflation resistance even with heightened uncertainty, including Middle East-driven volatility and tariff headwinds.
ConnectCRE cited preliminary Q2 trends showing office properties recorded a ninth consecutive quarter of positive net absorption, apartments pushed vacancy rates lower, and retail and industrial space saw vacancy rates remain relatively stable. The outlet said inflation could decline and economic momentum could improve if the Middle East conflict is resolved, which could benefit real estate fundamentals.