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Conflict Continues Clouding Economic Outlooks as CRE Remains Resilient
There’s been much discussion about ongoing tensions in the Middle East and their economic impacts. Everyone is feeling the pinch at the gas pump, with fuel-dependent industries (think aviation) likely to pass along their rising costs to consumers.
Marcus & Millichap senior vice president John Chang explains that there are additional commodities that make their way through the Strait of Hormuz, which could also result in economic headwinds:
- The price of some fertilizers has increased by more than 50%, impacting farming and agricultural activities
- The price of helium, used for semiconductor and electronics production, is up by 10% to 20%
Furthermore, “Trans-Pacific shipping costs have risen by 35% and flatbed trucking, which is used to move shipping containers across the U.S., has experienced a 26% cost increase,” said Chang in a recently released video, “Could Economic Volatility Bolster Reinvestment?”
More Numbers from the Home Front
Perhaps unsurprisingly, higher shipping and product costs from halfway around the world have impacted U.S. economic metrics. The annual Consumer Price Index (CPI) released in March came in at 3.3%, up 85 basis points (bps) from the previous month.
At the same time, the Producer Price Index jumped by 60 bps to reach 4% on a year-over-year basis.
Additionally, “consumer sentiment dropped to a record low in March, while job creation remains below historical norms,” Chang commented.
He added that persistent inflation, combined with slower economic growth, puts the Federal Reserve between a rock and a hard place when it comes to raising or lowering the Effective Federal Funds Rate (EFFR).
Then, There’s CRE
Chang said that economic volatility did push commercial real estate lending spreads higher, “though recent weeks have seen some normalization.” Bank lending rates for CRE are in the 6% range, while agency-supported multifamily loans are in the mid-5% range.
On another positive front, CRE investor appetite remains strong, with capital flows and transaction activity increasing. Change said that the Mortgage Bankers Association is forecasting a 15% increase in lending activity for the remainder of 2026.
“In this environment, CRE’s appeal lies in its competitive yields, durable cash flows, and ability to serve as an inflation hedge,” he explained. “As market volatility persists, these characteristics are reinforcing the sector’s role as a strategic allocation for investors seeking stability and long-term value.”
- ◦Sale/Acquisition
- ◦Financing
- ◦Economy
