Few of us could have predicted the Russia-Ukraine, and even fewer could have known it would last this long. Unfortunately, the war is ongoing, and it is difficult to tell if it will subside soon. The act of war is a crisis, but this specific one has led to another primary concern – the fuel crisis. The impact of the fuel crisis on commercial real estate has been extensive, and we covered it in a blog a few months ago.

We are revisiting this topic because the crisis will persist, and commercial real estate will continue to face the impact. This blog aims to study the accuracy of our previous assessment and explore further ramifications.

The Current State of the Conflict

The war between Russia and Ukraine was not meant to last this long. Both sides and experts believed the other would give up, and the conflict would end. However, the earlier assessments were incorrect, and the forces continued to battle on Ukrainian land.

It is challenging to make any conclusive statement, but it is safe to assume the war will take at least another few months to end.

How It Is Affecting the Ongoing Fuel Crisis

Several nations threatened to sanction Russia previously and have since followed through on those threats. In response, Russia, a significant oil provider, restricted supply, causing the current fuel crisis. While the US has tried to cover the deficit through its oil production, the prices have increased extensively.

The problem is that this change will likely last, even after the war ends. Russia has banned several American officials and will probably refuse beneficial trade relations for some time.

Impact of Fuel Crisis on Commercial Real Estate

The ongoing fuel crisis has also affected the commercial real estate industry extensively. Following are three primary changes and their updates:

1. Increasing Inflation

The hike in fuel prices has led to a general increase in prices and substantially increased inflation. We predicted as much in the last blog, which was the correct assessment. Inflation has risen from 7% in December 2021 to 8.6% in May 2022.

Additionally, Energy prices have gone from 25.6% in February 2022 to 34.6% in May 2022. Such increases have led to increased construction raw materials and commercial real estate costs.

2. Higher Interest Rates

The Government has been trying to curb inflation and recently increased interest rates significantly. It was the expected outcome, but the change has yet to manifest in the market. It will likely curb commercial real estate investment but may cause a few trend changes.

3. Shift Away from Cryptocurrency

Lastly, cryptocurrency has taken an unexpected hit due to the increase in interest rates. The currencies have been declining in value, troubling for investors who invested in mining facilities.

Final Thoughts

In short, the continued fuel crisis is curbing commercial real estate investment and increasing inflation. However, holding back on investment is not the solution. The solution is to tweak the investment strategy to accommodate the new reality.

CHRE has been in the industry for several years, and we can help you find the best deals. Please contact us, and our team will be happy to assist you.