How Geopolitics is Impacting US Commercial Real Estate

Key Takeaways:

Geopolitical risks are closely linked to US commercial real estate through market volatility, energy prices, and the rising cost of US debt.

Despite a recent oubreak of war in the Middle east and new tarrif announcements, market attention to geopolitical risks has been in relative decline since early May.

Year-to-date, CRE assets have fared better in dollar terms than when measured against leading global currencies.

Markets Watch the World

While domestic conditions remain the primary driver of US real estate fundamentals, the sector remains vulnerable to increasing global instability and the uncertainty that has come with it.

According to tracking by BlackRock's Geopolitical Risk Indicator (BGRI), market attention to geopolitical risks shifted significantly higher at the beginning of 2025, driven by the advancement of US-China strategic competition and uncertainty surrounding the Trump Administration’s approach to trade policy.

In recent weeks, a new outbreak of war in the Middle East, which saw direct US involvement, and new speculation around trade talks have thrust geopolitics back into the spotlight of the financial media landscape. However, direct market attention to geopolitical risks has been in relative decline since early May.

Oil markets were largely unscathed by the 12-day conflict between Israel and Iran. At the same time, a new trade agreement struck between the United States and China in June offered some relative détente between the two superpowers.

Still, though market attention to geopolitical risks has returned close to where it had been following the October 7th, 2023 attacks, concern for the risks of global trade protectionism remain structurally elevated. Those concerns are also a primary factor driving how markets frame geopolitical risks more generally.

Protectionism's Trickle-Down Effect

In addition to its salience to the market, among the assets that the BGRI tracks for their sensitivity to specific geopolitical risks, the risk of global trade protectionism is the scenario most consequential to US real estate assets.

BlackRock estimates that prices of US Treasuries and consumer durable goods are among the most exposed to increased risk from global trade protectionism. Along with fluctuations in the US dollar, the price of oil, and overall market volatility, these factors are closely linked to the valuations of domestic real estate assets.

Treasury yields have experienced heightened volatility in 2025 in response to several converging macroeconomic forces. On the one hand, anticipated weakening domestic business investment and consumer spending is placing downward pressure on longer-term bond yields. Meanwhile, a healthy labor market and uncertainty about tariff impacts on inflation is keeping the Fed Funds and other short-term rates relatively high.

While the US has recently signed deals with China and Vietnam, negotiations with several other countries remain ongoing, and, as The Economist notes in a recent article, the US-China trade war may be shifting into the proxy phase. Meanwhile, President Donald Trump recently announced an intention to impose a 30% tariff on goods from the EU and Mexico, casting doubt over the potential for new diplomatic stability on trade.

Taken together, no single trade development is likely to extinguish the prevailing uncertainty, leaving investors looking for ways to best position themselves for any eventuality.

The global repositioning of investment capital has matterialy impacted the relative strength of the US dollar. Typically, a flight to safety prompts a strengthening of the US dollar relative to other currencies, due to the greenback's historical status as a safe haven. However, the US dollar has weakened by record levels during the first half of 2025, indicating that investors are diversifying their flight to safety via purchases of gold and other global sovereign debt. Concerns about the nation’s fiscal health have exacerbated this effect.

Within US commercial real estate, the Greenback's 2025 slide has meant that domestic assets have fared worse when priced in foreign currencies. Priced in dollars, US commercial property prices are down by 0.9% since the start of 2025. However, after weighing the dollar against a basket of foreign currencies, global valuations of US commercial property are down by a much steeper 5.8%.

Nonetheless, other market indicators illustrate a less alarming situation for US real estate fundamentals.

Healthy US consumer spending during the first half of 2025, along with a recent spike in US factory activity, signals that demand has largely shaken off recent global headwinds. Industrial leasing activity rose to begin 2025 despite the cloud forming above domestic demand for imported goods, while spending on durable goods has risen on a month-over-month basis for most of this year.

Investor attention to geopolitical risks does not always translate to market movement. Yet, the BGRI helps enlighten which of those risks are driving investor sentiment, where common blind spots might exist, and how potential developments could impact the real estate landscape.