Ongoing conflict in the Middle East is rippling through global supply chains and feeding into higher costs across the U.S. economy, but commercial real estate continues to attract capital despite the volatility. Fuel prices have climbed, squeezing consumers at the gas pump and pressuring transportation-heavy sectors such as aviation, where higher costs are expected to be passed through to end users.
John Chang, senior vice president at Marcus & Millichap, notes that the economic effects reach beyond energy. He points to commodities that move through the Strait of Hormuz as examples of how regional disruptions can have broad pricing impacts. Some fertilizers have risen more than 50% in price, putting additional cost pressure on farming and agricultural operations. Helium, a key input for semiconductor and electronics manufacturing, has increased by roughly 10% to 20%, with implications for technology supply chains and production costs.
Logistics and freight costs are also moving higher. According to Chang, Trans-Pacific shipping costs have increased by 35%, while flatbed trucking rates used to move shipping containers across the U.S. are up 26%. These higher transportation and input costs are now visible in headline inflation data and business cost metrics.
On the macro front, the annual Consumer Price Index reading released in March registered 3.3%, an 85-basis-point increase from the prior month. The Producer Price Index climbed as well, rising 60 basis points to reach 4% year-over-year. Chang adds that consumer sentiment fell to a record low in March, and job creation is running below historical norms, reinforcing concerns about the durability of the current expansion.
Persistent inflation alongside slower growth leaves the Federal Reserve in a difficult position as it weighs adjustments to the Effective Federal Funds Rate. Policy decisions must balance the need to contain inflation against the risk of undermining already moderating economic momentum.
Within this environment, CRE capital markets have experienced some near-term turbulence but remain functional. Chang reports that economic volatility widened lending spreads earlier in the year, though conditions have started to normalize in recent weeks. Bank lending rates for commercial real estate are currently in the 6% range, while agency-supported multifamily debt is pricing in the mid-5% range, underscoring continued access to financing even as borrowing costs remain elevated relative to prior cycles.
Investor demand for CRE has stayed resilient. Capital flows and transaction activity are increasing, and Chang cites a Mortgage Bankers Association forecast calling for a 15% rise in lending activity over the remainder of 2026. He notes that investors are drawn to commercial real estate for its competitive yields, durable cash flows, and perceived inflation-hedging characteristics. As volatility persists across broader capital markets, these features are helping reinforce CRE's role as a strategic allocation for investors focused on stability and long-term value.
