U.S. Airstrikes on Iran Add New Variable to CRE Uncertainty

Rising tensions in the Middle East between the U.S. and Iran have added a new potential headwind to growing uncertainty hovering around the health of commercial real estate assets in an elevated interest rate environment.

Iran struck the Al Udeid U.S. Air Force base in Qatar on Monday two days after the U.S. bombed three of Iran’s nuclear sites. There were no casualties in the attack however, and the Dow Jones Industrial Average rose 0.89 percent in Monday trading as U.S. oil prices dipped. 

“While recent developments in Iran underscore serious risks to geopolitical stability, the market response has been notably restrained — suggesting that investors broadly anticipate a contained conflict and a path toward de-escalation,” Sam Chandan, director of New York University’s Chen Institute for Global Real Estate Finance, told CO early Monday afternoon. “That assumption underlies our current baseline, that near-term impacts on the U.S. economy and commercial real estate will be limited.”

Chandan cautioned, though, that the Iran situation still carries “meaningful tail risks” including a potential lengthy disruption to oil flows through the Strait of Hormuz between the Persian Gulf and the Gulf of Oman. He said a more widespread escalation could also create more global trading barriers that create risks for repricing energy markets and “rekindle inflation concerns,” which could result in interest rate increases that harm U.S. CRE debt heavily dependent on consumer spending, like retail. 

“For now, CRE capital flows remain resilient, but this is a moment that underscores the importance of scenario planning,” Chandan said. “Even distant geopolitical shocks can have asymmetric effects on investment sentiment, lending conditions and property-level fundamentals if they intersect with macro vulnerabilities.”

Global unknowns from the U.S. and Iran attacks add another variable to the CRE industry’s hopes for lower interest rates less than a week after the Federal Reserve opted to open 2025 by maintaining short-term rates at between 4.25 percent and 4.5 percent for a fourth straight meeting. The Fed also said in a post-meeting report that two cuts might occur later in the year based on the “dot plot” matrix of individual committee members.

Jonathan Morris, an adjunct professor of real estate investment trusts at Georgetown University, said he does not expect the Middle East turmoil to directly lead to any decision by the Fed on interest rates, especially with potential tariffs weighing far more heavily on the central bank. Morris noted that if global tariffs announced by Trump on April 2 take effect, retail prices will increase on goods imported to the U.S.

Morris stressed that U.S. CRE values and trading activity largely hinge on interest rates and whether there is an “eventual absorption of excess product” in several property sectors with few new starts.

“Once excess inventory is absorbed in several property sectors and the Fed decides to cut rates, commercial real estate values will rise along with investment activity,” Morris said. 

Andrew Coen can be reached at acoen@commercialobserver.com