Navigating the Energy Shock: What Rising Energy and Construction Costs Mean for Occupiers

Energy market volatility is creating real and uneven cost pressures for occupiers across global portfolios.

Disruption to global energy supply has driven sharp increases in oil and gas prices, contributing to higher inflation and delaying anticipated interest rate cuts. While energy prices have eased from their recent highs, forward indicators suggest a prolonged period of volatility rather than a rapid return to prior conditions.

The impact extends beyond energy. Rising costs are influencing building operations, construction programs and capital planning decisions—with the effects unfolding over time depending on geography, contract structure and market dynamics.

What Happened and Why It Matters

The Middle East conflict has disrupted global energy flows, tightening supply and elevating pricing across oil and gas markets. Despite a recent easing of energy prices, structural damage to energy infrastructure means markets are not anticipating a near-term return to normal conditions.

The Macro Picture

The energy shock’s effects are primarily inflationary, as global economic growth has continued despite the energy supply disruptions. However, higher energy costs are pressuring household and corporate spending, while central banks are adjusting interest rate policy expectations in response to persistent inflation. For now, rate cuts have been delayed with heightened risk of rate increases.

The impact varies by region, with Europe and parts of Asia-Pacific facing more pronounced effects due to reliance on imported gas.

Building Operating Costs: Your Energy Exposure

Energy is a significant component of operating cost, with exposure varying widely by region, building type and contract structure. In markets with gas-linked electricity pricing—particularly across Europe—even buildings that don't use gas directly face higher power bills, as electricity prices in these markets move with gas costs.

In many cases, the full effect of current pricing dynamics may not appear immediately. Past experience suggests the FM budget impact typically lags a wholesale energy price spike by 6-12 months–meaning budgets set before February 2026 are likely to be under-costed for the period ahead.

Construction and Capital Programs

Rising oil prices are driving increases in energy-sensitive materials, contributing to upward pressure on project budgets. Even under current conditions, material costs are projected to rise by 6.6% to as much as 10.7%. These cost increases may affect the feasibility, timing and investment assumptions behind active or planned programs.

What Occupiers are Considering

In response to evolving market conditions, occupiers are increasingly focused on:

• Understanding regional exposure across portfolios
• Reviewing energy contract structures and renewal timing, particularly where contracts are due for renewal in 2026-2027
• Reassessing construction budgets against current cost assumptions
• Incorporating contingency into forward-looking plans

Outlook and What to Watch

The outlook for energy prices remains closely tied to developments in the Middle East and the pace of supply recovery. Forward indicators suggest continued volatility in both energy and construction markets, and planning assumptions may need to account for continued cost pressure rather than a near-term normalization.

This briefing reflects market conditions as of late May. Given the pace at which the situation is evolving, CBRE will provide updates as conditions develop.

Download the full briefing for detailed analysis of global energy dynamics, regional exposure and potential implications for occupier portfolios.