Commercial real estate is facing another energy shock, but its impact extends beyond utility bills. Rising oil prices have increased the cost of diesel, shipping, trucking, manufacturing, and petroleum-based construction materials. If those pressures persist, they can feed into inflation, delay development, pressure tenants, and complicate the interest rate outlook.
While the U.S. is somewhat less exposed to certain oil price scenarios because of its domestic energy production, domestic owners and developers aren’t insulated from higher fuel, freight, material, labor, or capital costs. The practical CREA question? How long will the disruption last, and which assets can absorb it without damaging returns?
For years, energy costs hovered in the background of CRE underwriting. Building owners budgeted for utility increases, passed through what leases allowed, and replaced aging equipment. They treated energy management as an operating line item, not a value driver.
Lately, that approach is harder to defend.
Electricity costs continue to rise in many markets. Utility infrastructure is struggling to keep pace with demand. Some projects face long waits for power delivery or interconnection. Building performance standards continue to expand, pushing owners to track energy use, report emissions, and fund upgrades they may have deferred for years.
For CRE investors, developers, and operators, rising costs and tightening power supply extend beyond the electric bill. Energy has infiltrated net operating income, capital planning, tenant retention, development timelines, refinancing, and asset liquidity.
Rising utility costs hit NOI
The national average commercial electricity price reached $0.14 per kWh in June 2026, up 4.8% from June 2025, with commercial electricity sales up 3.4% YOY. This pattern isn’t new. U.S. retail electricity prices have climbed faster than inflation since 2022, and experts predicted that gap to persist through 2026.
A September 2026 rate analysis covering 20 representative commercial building profiles found that pressure is coming from various sources, all pushing rates up at once:
- Capacity costs
- Storm-related spikes
- Global market volatility
A typical annual escalation line in a model budget can’t capture what’s happening right now. Natural gas and oil prices add another layer of exposure. One September 2026 outlook projected Henry Hub gas to average near $3.76 per MMBtu and Brent crude near $79 per barrel for the year — prices that affect generation costs, construction inputs, and logistics spending across a portfolio.
Given that US benchmark WTI crude was $92.63 per barrel and the international benchmark Brent crude was $103.43 per barrel in September 2023, $79 per barrel seems mighty optimistic.
A few cents per kWh might not look like a big deal initially, but it adds up quickly for a warehouse, shopping center, or medical facility. Recovery through leases depends on structure, tenant credit, and how much an owner can raise expenses without hurting occupancy. The gap worsens in older buildings with dated HVAC, poor controls, or equipment running longer than it should.
The most energy-efficient office buildings in a recent multi-market study cost 43% to 75% less to operate annually than the least efficient buildings in the same city — a difference of $1.58 to $5.13 per square foot depending on location. That number can seriously impact operating margins and how a building competes. A tenant might tolerate a higher base rent for predictable costs and fewer service interruptions or push back on rent at a property that can’t promise either.
Oil inflation: A construction cost problem
CRE feels the pinch of oil prices well before tenants get their utility bills. Development and renovation depend on diesel-powered equipment, trucking fleets, shipping networks, generators, and construction labor that must travel to job sites. Oil also affects the cost of building products reliant on petroleum derivatives (e.g., PVC piping, insulation foam, roofing membranes, adhesives, sealants, paints, coatings, synthetic flooring, etc.).
That exposure creates a lag. Development teams may rely on cost assumptions prepared before the latest price increase, while contractors and subcontractors update bids as fuel, materials, and freight costs move through the supply chain.
The potential result? More value engineering, delayed starts, renegotiated contracts, thinner contingencies, and projects that fail to meet return thresholds.
The risk is especially relevant for logistics, industrial, multifamily, and suburban projects requiring large quantities of imported equipment, steel, concrete, panels, or long-haul transportation. Projects in car-dependent markets may also face higher labor costs as rising fuel prices increase tradespeople’s commuting expenses.
A sustained oil shock can move through CRE in a familiar sequence:
- Higher fuel and material costs contribute to inflation.
- Inflation affects interest rate expectations.
- Financing remains expensive.
- Transaction activity slows.
- Asset values come under pressure.
Power capacity is becoming a site selection issue
Energy costs are only part of the equation. In many markets, the more immediate concern is whether sufficient power is available at all.
Data centers have made this issue impossible to ignore, but they’re not the only ones affected. Advanced manufacturing, life sciences, cold storage, EV-charging logistics facilities, hospitals, and even office buildings need reliable power capacity. Even conventional projects are drawing more load as owners replace fossil fuel equipment or add backup power.
U.S. electricity consumption is projected to keep rising through 2050, growing 0.9% to 1.6% annually, with data center load identified as a major driver. A 2026 market outlook names longer power delivery timelines as an emerging constraint on new supply. A site can check every box on land cost, labor, and zoning and still stall if the local utility can’t deliver capacity on the project’s timetable.
Another analysis noted that in Silicon Valley, high-power leases achieved average rents 49% higher than other leases over the previous three years. While that figure is specific to a power-constrained market and shouldn’t be applied universally, it illustrates the premium usable power can command when demand outpaces supply.
Older buildings face a wider gap
The difference between an efficient and an inefficient building has become more visible to lenders, tenants, buyers, and local regulators.
While energy use has long been associated with operating costs, it’s also becoming a proxy for management quality and future capital needs. A building with reliable utility data, modern controls, well-maintained equipment, and a documented upgrade plan is easier to evaluate. A building with limited data, deferred maintenance, and no clear path to compliance creates more uncertainty.
That uncertainty can affect valuation. Energy-efficient commercial buildings have shown sale price premiums in the 13% to 20% range, although evidence spans multiple countries and shouldn’t be applied as a fixed U.S. assumption.
The more immediate risk? The Carbon Risk Real Estate Monitor (CRREM), which tracks when a building’s projected energy or emissions performance misaligns with the Paris-aligned benchmarks. CRREM recently renamed the trigger point from “stranding year” to “misalignment year” for precision. A projected misalignment doesn’t guarantee a value loss, but it does flag an asset that could face rising compliance, capital, or financing pressure without action.
The capital markets effect may be as consequential as the direct operating cost effect. Oil-driven inflation can make central banks more cautious about cutting rates, keeping debt costs elevated for longer. In the CRE sector, that caution can:
- Widen the gap between seller expectations and buyer pricing.
- Weaken development feasibility.
- Increase pressure on borrowers approaching loan maturities.
The impact won’t be uniform. One analysis suggests comparable oil shocks could have smaller, shorter-lived cap rate effects in the U.S. than in Europe, largely because the U.S. is less dependent on imported energy. That potential doesn’t eliminate risk, however. Higher fuel prices still work through construction inputs, tenant operating expenses, consumer spending, and lender assumptions.
Building standards raise the stakes
More state and local governments are adopting building performance ordinances that require benchmarking, performance targets, or penalties for noncompliance. Owners should check local rules for specifics.
For example, California already requires annual benchmarking for certain commercial buildings. The state is developing further performance-based policy under its Building Energy Performance Strategy.
Compliance in these markets may require capital spending on controls, HVAC, envelopes, or on-site generation. Properties that wait until a deadline forces the decision tend to pay more, with fewer equipment choices and less ability to coordinate the work with planned renovations or tenant turnover.
The effect will vary by property type
The current energy shock won’t land evenly across CRE. Data centers, life sciences facilities, hotels, restaurants, cold storage, and advanced manufacturing properties often carry high energy exposure because of their operating demands.
Industrial and logistics assets face a different, complicated picture. Higher transportation and construction costs could create headwinds. Supply-chain disruptions may lead some occupiers to hold more safety stock, diversify suppliers, or seek more warehouse space closer to end markets.
Owners should evaluate local tenant demand, transportation exposure, supply chain patterns, and the building’s efficiency rather than treating an entire sector as an energy-crisis winner or loser.
The practical response
Energy planning now belongs in acquisition underwriting, construction budgeting, asset management, leasing, and disposition strategy. During due diligence, buyers should pull:
- Several years of utility bills
- Peak demand data
- Equipment age
- Local compliance requirements
Development teams should revisit contractor pricing, escalation clauses, contingencies, material lead times, and the status of utility interconnection commitments. A project that worked under earlier cost assumptions may require a new feasibility review if oil, materials, or debt costs remain elevated.
For existing assets, your first move may not be a retrofit. Start by establishing your baseline to determine where the energy goes, when demand spikes, and whether the property is paying avoidable charges. Tools to use (though not every property needs them all) include utility bill audits, retro-commissioning, procurement strategy, on-site generation, and battery storage.
The current energy shock won’t immediately distress every commercial property, and it won’t affect every market the same way. It does, however, expose assumptions that were easier to ignore when we could predict fuel, materials, electricity, and debt costs.
The properties best positioned for what comes next won’t be identical. Some may have locked in power capacity in constrained markets. Others will simply cost less to run because an owner invested in equipment and controls before utility bills became a bigger drag on NOI. Assets with deferred maintenance or development budgets based on outdated assumptions may have less wiggle room. Either way, factor energy performance into your calculations when determining whether an asset is competitive, financeable, and easy to sell.
Are you a commercial real estate investor or seeking a specific property to meet your company’s needs? We invite you to talk to the professionals at CREA United, an organization of CRE professionals from over 65 firms representing all disciplines within the CRE industry, from brokers to subcontractors, financial services to security systems, interior designers to architects, movers to IT, and more.
