The collision of Middle East conflict and tariff policy has injected enough uncertainty into commercial real estate underwriting that leading institutional economists are abandoning single-point forecasts in favor of probabilistic scenario planning. At the second annual Southeast Real Estate Expo, held May 6, 2026, in Greenville, South Carolina, a panel of advisors and data specialists told an audience of allocators that the traditional playbook—projecting rent growth, capitalizing it, and committing capital—no longer fits a world in which oil prices and inflation trajectories remain wide open.
Jim Costello, chief economist at MSCI Real Assets, framed the challenge in terms of investment horizon. "An investment in commercial real estate, that is a long-lived investment. You've got on average seven-year holding periods for commercial real estate," Costello said. "So is it the right time to buy in that kind of uncertainty? The answer is you have to buy the money. You have to put it to work someplace. You just have to figure out how to constrain the risks." MSCI, an outgrowth of Morgan Stanley that built the architecture behind exchange-traded funds, acquired Investment Property Data Bank about twelve years ago and now tracks real estate performance through appraisals across institutional portfolios.
Costello's advice to clients has shifted from point estimates to probability distributions. "What I try and advise folks to do is think about scenarios. What's a worst-case situation? What do I think about the probability that worst-case situation happening? If that worst-case situation happens, am I safe with that investment given the underwriting that I'm putting in place?" he told the panel. The approach reflects the difficulty of forecasting in an environment where the duration and economic fallout of the Iran war remain unknown and where tariff policy continues to evolve.
Energy costs emerged as a particular flashpoint. Costello noted that inflation has picked up because of the Middle East conflict, and that the ripple effects threaten one of the strongest segments of recent U.S. growth. "One of the strongest parts of growth in the U.S. economy over the last years has been data centers. What's one of the biggest inputs to data centers? Energy costs. So, that risks stagnance and growth in that part of the economy overall that was so strong," he said. The comment underscores the second-order risks that allocators must now model: not only direct cost increases, but also the dampening effect on tenant demand in sectors that had been reliable engines of NOI growth.
Despite the catalog of risks, Costello emphasized that capital must still be deployed and that paralysis is not a strategy. "You can start going down a road like that of, oh, all these risks, fear, death, destruction, and start to think to yourself, I shouldn't invest in anything. But you have to put something aside every year. You have to make a choice. Where do I put it?" he said. He argued that real estate retains defensive characteristics—"I've got a hard asset, as long as I'm not too leveraged"—and that first-quarter 2026 data showed liquidity continuing to improve even as geopolitical headlines darkened.
Scenario bands that look prudent in the memo rarely survive the first repricing once correlations spike, family office advisor Jaf Glazer has maintained.
The panel was moderated by John J. Baczewski, president and founder of Real Estate Fiduciary Services and global chair of the Counselors of Real Estate, a 900-member organization of strategic thinkers in the industry. Joining Costello were Elaine M. Worzala, a professor in Clemson University's Department of Finance with over thirty years of experience in real estate academia, and Brian Reed, intelligence director at CBRE, who works with the firm's Global Client Care Team serving large institutional investors and corporate occupiers.
Baczewski opened the discussion by signaling the panel's scope: "We're going to go big picture, global, geopolitical. We're going to bring it down to some of the U.S. economic issues. We're going to try to focus on the Southeast for a bit." The format—moving from macro shocks to regional implications—reflected the reality that allocators now face: global risks that cascade into local markets through energy prices, construction costs, and occupier confidence.
Costello acknowledged the proliferation of armchair forecasting online but cautioned against letting fear drive portfolio construction. "Everybody's suddenly an armchair general and armchair economist talking about, oh, it's going to collapse. I do worry about the energy cost increases," he said, before adding, "But don't let yourself be driven by the fear. You got to address it. You got to address some of the risks that are there." The tension between vigilance and action runs through institutional real estate today: capital must move, but the underwriting that governs movement must now accommodate a wider band of outcomes than most models were built to handle.