Key takeaways
- Diesel has risen 68% since late February, driven by the closure of the Strait of Hormuz and Russia’s export ban. Goldman Sachs forecasts no meaningful relief through 2027.
- The US retail real estate market is caught between record demand and a near-frozen supply of new space. With the active construction pipeline at just 0.3% of existing inventory and national vacancy at 4.4%, the brands with the most aggressive expansion plans have almost nowhere to go.
- The numbers on new retail real estate development no longer add up on either side of the Atlantic. Until rents rise significantly and construction costs fall, landlords with well-located existing space hold the leverage.
The Strait of Hormuz has been effectively closed for six months, cutting off roughly 20% of global crude supply. In July, Russia banned diesel exports — a move prompted by Ukraine’s drone strikes on its refineries, which took approximately half of Russian refining capacity offline by the end of August. US refineries were already running at 98% utilization, their maximum, splitting output between diesel and higher-margin jet fuel. Supply never caught up with the shortfall.
Diesel hit $6.53 per gallon in late September, an all-time daily record. It averaged $6.38 by the end of the month, up 68% since the US-Iran conflict began in late February, when it sat at $3.81. Goldman Sachs forecasts no meaningful relief through 2027.
Every $1.00-per-gallon increase in retail diesel costs the domestic transportation sector an estimated $120 million per day in direct surcharges, according to the American Action Forum. Between late February and August, the $1.61-per-gallon rise translated to roughly $34.8 billion in added fuel costs for commercial transport. And that figure doesn’t yet account for what’s happening to retail real estate.
The retail real estate squeeze
Building a retail center in the US has never been cheap. But diesel prices have made the economics nearly impossible. When prices surge 68% in eight months, development costs follow. In fact, between February and March 2026, the producer price index for materials and services used in nonresidential construction recorded its largest one-month increase in four years, driven primarily by the surge in diesel fuel.
Construction spending in the US increased more than 42% between August 2020 and August 2026, according to the US Census Bureau. Retail rents have not moved at anything close to that pace. Speaking to Commercial Observer on October 5, CoStar’s Brandon Svec put it plainly: “Rents have not risen at near the same pace in retail as what we’ve seen in other asset types over the last 15 years. There’s now a substantial gap between what it costs to build a retail center today and where market rents are currently at.” Diesel has widened that gap further.
Developers are responding the only rational way: by not building. The active construction pipeline now stands at just 0.3% of existing inventory, near a 25-year low. Less than 30% of new retail sites are available to lease. Yet demand is running in the opposite direction; retailers moved into more space in Q2 2026 than in any quarter since 2022, with net absorption reaching 10.2 million square feet and national vacancy holding at 4.4%. Retailers haven’t been this short of space in 25 years, and the conditions that would normally trigger new development — strong demand, low vacancy — are precisely the conditions that diesel prices are making economically unworkable.
The brands feeling this most acutely are those with the most aggressive expansion mandates in the US market. Dollar Tree opened 402 new stores in 2025 and has 400 more planned for 2026. Dollar General launched the first phase of a $1.6 billion renovation program, adding 450 new locations this year. Burlington, Aldi, TJ Maxx, Whole Foods, all are chasing a market that has almost no room left for them. As JLL’s James Cook told Commercial Observer: “If you’re a retailer, on the one hand, you’re saying shoppers really want the value offer I have right now. On the other hand, you’re really struggling to find a place to open your store.”
Europe: a different exposure
Europe is dealing with the same supply shock, but the numbers hit differently. Euro area energy inflation reached 18.8% year-on-year in September 2026, the single largest driver of an overall inflation rate of 3.8% — well above the ECB’s 2% target and rising. EU diesel pump prices reached €2.26 per liter on September 17, up 38% since late February, according to the International Road Transport Union. Unusually, diesel is now more expensive than petrol across the EU, a historically rare inversion driven almost entirely by the geopolitical shock.
Construction output in the euro area was 2.0% lower in July 2026 than a year earlier, declining at the precise moment that demand for new retail space would normally be pulling development activity higher. Cushman & Wakefield forecasts prime retail rents to grow 1.9% annually over the next two years, steady growth driven by supply tightening rather than demand strength.
Government responses have been patchwork. Germany renewed fuel tax cuts. Latvia cut diesel excise duty. Croatia capped pump prices. These are short-term political responses to a structural energy problem, and none of them change the underlying economics for developers or retailers trying to plan two or three years ahead.
What comes next
Goldman Sachs forecasts diesel prices will remain elevated through 2027. The conditions that produced it are not resolving on any near-term timeline. The numbers on new retail real estate development no longer add up. Rents would need to rise significantly while land and construction costs fall, a combination that requires both a diesel reversal and a demand softening simultaneously.
The leverage, for now, sits with landlords. Those with well-located existing space are in a position they haven’t occupied in 25 years. Retailers with the flexibility to move quickly on second-generation space have a window that won’t stay open indefinitely. Those waiting for new development to ease the supply constraint, or for diesel to return to pre-conflict levels, are making a strategic bet that the data does not currently support.
