Energy Shocks and Occupier Impact

Plenty has been written about how energy price shocks and oil scarcity are impacting commercial real estate. Higher oil prices are impacting everything from CRE asset valuations to construction to overall macroeconomics (including inflation).

A recent CBRE article said that another commercial real estate category is also affected: Occupiers.

Increasing energy costs are impacting building operations and capital planning decisions across the United States, Europe and parts of the Asia-Pacific. The article noted that the latter two regions are facing “more pronounced effects” due to their reliance on imported gas.

Delving into Specifics

The CBRE authors explained that energy is a high operating cost for occupiers, though exposure “varies by region, building type and contract structure.” European markets with buildings that run on gas-linked electricity have faced larger power bills, as electricity costs have risen.

In the capital programs area, rising oil prices are affecting energy-sensitive materials, with costs expected to increase by 6.6% to 10.7%. “These cost increases may affect the feasibility, timing and investment assumptions behind active or planned programs,” the article said.

Nor will the news get any better. The CBRE authors are forecasting “a prolonged period of volatility rather than a rapid return to prior conditions.” Additionally, the full impact of current pricing dynamics might not be immediately apparent. The article noted that the impacts of facilities management budgets can lag wholesale energy price spikes by 6 to 12 months.

“Budgets set before February 2026 are likely to be under-costed for the period ahead,” the authors added.

The Occupiers’ Focus

The article indicated that today’s occupiers are increasingly focused on the following:

• Regional exposure across portfolios

• Energy contracts and renewal timing (especially those coming up for renewal in 2026-2027)

• Construction budgets across current cost assumptions

• Contingency incorporation into forward-looking plans

What to Watch

It’s no surprise that the energy price outlook is tied to developments in the Middle East, as “forward indicators suggest continued volatility in both energy and construction markets.” As a result, occupiers could continue to account for cost pressures as they embark on plans.