The U.S. participates in business with countries from all over the world, linking them through investments and the flow of goods and services. Global business relationships have led to other countries seeking opportunities in the U.S., such as commercial real estate investments. However, globalization has a more complex impact on commercial real estate and goes beyond foreign investment. And this has mostly to do with how the U.S. relies on international sources for materials used in construction and maintaining commercial real estate.

Approximately 40% of a structure is constructed using imported materials, including electrical equipment, cement, steel, lumber, and insulation – all of which are subjected to tariffs. The U.S. imports most of its construction materials from China, South Korea, and Germany. If any of these countries were to increase their prices to combat inflation in their local economies, the U.S. would feel its impact and have to pay more – making the cost of construction higher. And when it costs more to build commercial real estate, investors may hold off on building until material prices have gone down. With a shortage of new structures, existing commercial buildings go up in value as their demand increases.

While the U.S. produces nearly all of the natural gas it uses, the U.S. also has sourced petroleum from Saudi Arabia, Russia, Mexico, Columbia, and Canada. In 2021, Russia was responsible for 8% of the U.S.’s petroleum imports. And news reported that the U.S. imported 245 million barrels of oil from Russia in 2021. However, by March 2022, President Biden signed an Executive Order banning the import of Russian oil, liquefied natural gas, and coal; this was in

retaliation for Russia’s invasion of Ukraine. And by late March and April 2022, gasoline prices rose to record highs in the U.S. as the national average topped $4 a gallon. As of December 2022, the national average for gas per gallon is $3.53, but at some point, it peaked at $4.99 a gallon.

Surging gas prices drive up the country’s inflation rate. When the price of gas increases, so does the cost of building and transportation. The price of importation would not only increase, but taking the materials to the site would cost more because gas has become more expensive.

However, that’s not all. When gas prices go up, everyday people and office workers must choose between gassing up their cars or using their money on necessities. This has led to the rising demand by workers asking their company leadership to allow them to work from home. Today, more and more companies are strategizing against rising gas prices by implementing remote or hybrid workforces, which allow their workers to work from home and save on gas. The rise in people working from home has led to the changing demands for commercial real estate as companies have less need to fill office spaces.

Let’s continue the discussion on how CRE investors can navigate through the impacts of global economics, rising gas prices, and inflation by using smart proven investment strategies. Please reach out to info@cbicommercial.com with any questions.