After a challenging 2025 defined by elevated costs, slower growth, and restrained deal flow, commercial real estate appears to be settling into a more balanced phase. While a dramatic rebound is unlikely, conditions are aligning for a steadier, more constructive year ahead.

Fundamentals finding footing

Economic momentum cooled last year, but declining interest rates are beginning to release sidelined capital. Industry leaders anticipate modest top-line growth in 2026, even as operating costs remain elevated. The market is adjusting to a new baseline—less volatile, more disciplined, and increasingly data-driven.

Capital cautiously returns

As financing costs ease and pricing resets become clearer, capital markets are showing early signs of life. Transaction volumes are improving, cap rates are compressing selectively, and lenders are re-engaging where sponsorship and fundamentals justify the risk. The groundwork for increased deal activity is forming.

Office: quality wins

Office demand remains bifurcated, but high-quality assets in major metros are tightening. With development at multi-decade lows, vacancy rates are expected to continue trending down as tenants compete for limited top-tier space. The message from brokers is consistent: premium inventory is scarce and moving quickly.

Industrial regains momentum

Industrial construction has pulled back sharply since its peak, just as demand accelerates. Manufacturing expansion, reshoring initiatives, and data infrastructure needs are driving absorption, potentially pushing the sector into a tighter supply-demand balance in 2026.

Retail evolves, cautiously

Retail leasing activity is increasingly concentrated in mixed-use and nontraditional formats, favoring smaller, more flexible footprints. While space demand has proven resilient, tariffs and rising input costs remain a wildcard that could pressure margins and consumer spending.

Multifamily recalibrates

A wave of new deliveries has cooled rent growth, particularly in oversupplied markets. While multifamily remains a core allocation, capital may rotate toward sectors offering better near-term risk-adjusted returns as supply digestion continues.

Data centers face new constraints

The data center boom dominated headlines in 2025, with pre-leasing often completed well before delivery. However, community pushback, power limitations, and infrastructure constraints are beginning to slow future development pipelines—forcing sponsors to rethink expansion plans.

REITs regain attention

After underperforming last year, publicly traded REITs could regain favor in 2026. Improved balance sheets, potential consolidation, and technology-driven efficiencies may help narrow valuation gaps and attract renewed investor interest.

The Bottom Line

Commercial real estate enters 2026 with clearer pricing, improving capital availability, and more realistic expectations. The next phase will reward investors who remain selective—prioritizing asset quality, strong sponsorship, disciplined underwriting, and sectors benefiting from technology and structural demand rather than leverage alone.