June’s Consumer Price Index offered a modest reprieve for the U.S. economy, with headline inflation easing to 3.5% as lower oil and gasoline prices filtered through to consumers. For commercial real estate stakeholders, that reading suggests a short-term cooling in one of the most volatile components of inflation.
Marcus & Millichap Vice President John Chang cautions that this improvement may be temporary. In a recent video titled “Inflation Risk: Headwind or Opportunity for CRE?” he notes that renewed tensions in the Middle East could disrupt energy markets again. Extended instability, he says, has the potential to keep prices elevated for longer and sustain broader inflationary pressure.
Chang highlights that such a scenario could raise the odds of another federal interest rate increase before year-end. Even with overall inflation moderating, energy remains a swing factor, influencing transportation and logistics costs and, by extension, headline inflation readings. In contrast, he points out that other key categories such as food, housing, and medical care are currently running at comparatively lower inflation rates, generally between 2% and the mid-3% range.
For commercial real estate investors, the prospect of persistent inflation and potential rate hikes is not a new concern. According to Chang, expectations of higher-for-longer interest rates are already largely reflected in Treasury yields and lending benchmarks. Because these risks are priced into the market, he suggests that the cost of debt capital is likely to remain relatively stable from here, barring new shocks.
Chang also underscores that commercial real estate can offer a measure of inflation resistance compared with many other asset classes. He notes that despite ongoing uncertainty, geopolitical tensions, and tariff-related headwinds, all four major property types are currently experiencing positive space demand.
Preliminary second-quarter data indicate that office properties have now logged nine consecutive quarters of positive net absorption, signaling continued tenant take-up even amid structural shifts in workplace usage. Apartment demand has been strong enough to push multifamily vacancy rates lower, while retail and industrial assets are seeing vacancy hold at relatively stable levels.
Chang adds that a resolution to the Middle East conflict could relieve some inflation pressure and potentially reinforce economic momentum. In that environment, real estate fundamentals could improve further as operating performance benefits from stronger growth and more predictable costs.
Looking ahead, he suggests that investors weigh the sector’s durability and its historical ability to partially offset inflation through income growth. With underlying space demand still in positive territory across major property types, he argues that commercial real estate is positioned to benefit when the broader economy ultimately shifts into a stronger gear.
