- Hines says geopolitical tensions, tariffs, and elevated construction costs are slowing new development and creating a favorable buying environment for existing real assets.
- Construction starts across office, residential, and industrial sectors have fallen as much as 50% to 80% from cyclical peaks, tightening future supply pipelines.
- The firm believes investors who acquire and reposition assets during the current slowdown could benefit from stronger rent growth and limited future competition.
According to IREI, real estate investors may finally be approaching the part of the cycle they’ve been waiting for. In a new May 2026 report, Hines argues that rising construction costs, labor shortages, and global trade disruptions are slowing development pipelines enough to create a compelling acquisition window across real assets.
The thesis hinges on a familiar CRE dynamic: when development slows, future supply tightens. Hines believes that dynamic is already taking shape across major markets in the Americas and Europe, particularly in sectors tied to housing, logistics, digital infrastructure, and energy transition assets.
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Supply Shocks Reshape the Market
According to Hines, the current environment reflects a convergence of geopolitical conflict, energy market volatility, tighter financing conditions, and tariff-driven cost pressures. The report notes that construction input prices remain 40% to 46% above pre-pandemic levels, citing Associated Builders and Contractors’ analysis of US Bureau of Labor Statistics data from December 2025.
The firm also highlighted growing uncertainty around global shipping routes and energy prices, particularly as tensions in the Middle East disrupt supply chains. Hines estimates that roughly 8% to 17% of construction costs are directly or indirectly tied to oil prices, amplifying the sector’s exposure to geopolitical volatility.
The Details
Development activity is already pulling back. Hines projects US construction volume will decline about 3.7% in 2026, with the sharpest slowdown concentrated in residential and commercial real estate. In Europe, construction output is expected to grow just 1.5% to 2.2% after two years of stagnation, according to Euroconstruct’s Winter 2025 forecast.
Labor shortages are adding another layer of constraint. Europe alone faces a shortfall of roughly 500,000 to 750,000 construction workers, per the European Construction Industry Federation’s 2025 annual report. Permitting delays and elevated capital costs are further slowing projects from moving forward.
Despite the slowdown, some sectors continue to attract development capital. Hines pointed to AI data centers, semiconductor manufacturing, infrastructure, select industrial projects, and housing in undersupplied Sun Belt markets as areas where demand remains strong enough to justify elevated costs.
A Looming Supply Cliff
Hines argues the bigger story is what today’s slowdown means for future inventory. Construction starts across office, residential, and industrial sectors have fallen between 50% and 80% from prior peaks, according to CoStar, MSCI Real Capital Analytics, and Hines Research data cited in the report.
That slowdown could create favorable fundamentals for existing properties over the next several years. Fewer projects breaking ground today means fewer competing deliveries hitting the market in 2027 through 2029, potentially supporting occupancy, rent growth, and asset valuations.
The firm also noted that acquisition conditions are improving as some investors remain sidelined. Contractor backlogs in the US have dropped to a four-year low, according to the Associated Builders and Contractors Backlog Indicator for January 2026, while subcontractor pricing has flattened as firms compete for work.
Why It Matters
The report reinforces a growing industry narrative that the post-pandemic development boom is giving way to a prolonged supply constraint cycle. If financing remains expensive and entitlement timelines stay elevated, many markets could face undersupply conditions just as long-term demand drivers reaccelerate. Higher Treasury yields are also pressuring property pricing and transaction activity across asset classes.
Hines estimates the world faces a $1.3T annual investment gap across infrastructure, energy systems, and housing, citing United Nations data from Q4 2025. That demand imbalance is one reason institutional capital continues flowing toward operational real estate sectors tied to demographics, logistics, and digital infrastructure.
What’s Next
Hines expects the current pricing environment to persist through roughly mid-2026 before deferred projects begin returning to the market. Until then, the firm sees the best opportunities in acquiring existing assets, securing development sites at discounted pricing, and investing capital into repositioning strategies.
The broader question for CRE investors is whether today’s slowdown ultimately becomes tomorrow’s rent growth story. If development pipelines remain constrained while demand recovers, owners with well-located existing assets could regain pricing power faster than many expected.
