Accordant Investments notes that private real estate faces a wide spectrum of potential outcomes shaped in large part by inflation expectations. On the upside, property values may rise with increased replacement costs, especially as tariffs make essential building materials—such as steel, aluminum, and copper—more expensive. These cost pressures can also fuel rental growth. Still, higher inflation simultaneously raises operating costs, cutting into net income. Yet, history shows that inflation can also draw investors to assets like CRE, which historically generate steady income and have strong appreciation potential.
The surge in replacement costs—driven by tariffs or supply constraints—will likely result in fewer new projects that can “pencil out” as profitable, according to Accordant. That curbs new supply and may ultimately favor the performance of existing CRE portfolios.
Meanwhile, leading economists from major businesses foresee negative short-term impacts from higher tariffs, including an elevated risk of recession. Such economic headwinds could pressure parts of the private CRE market. However, there are still “pockets of optimism.” If tariffs spur deflation or reduce demand enough, it could prompt the Federal Reserve to cut interest rates, lowering financing costs and narrowing the gap between current and historical cap rates.
If a healthy balance between supply and demand persists, real estate investors are positioned to benefit. Solid fundamentals suggest that CRE could gain further ground, especially if rising tariffs drive up construction expenses and tamp down new supply. With its income generation, low correlation to more traditional asset classes, and inflation sensitivity, CRE stands out as a “stabilizing force within multi-asset portfolios,” according to Accordant Investments.