As we move into the new year 2026, let us delve into what it holds for the real estate sector.

The commercial real estate had to be resilient in 2025 across sectors, despite stark policy uncertainty. However, now, capital is flowing effortlessly into the property sector. The U.S. commercial real estate market enters 2026 at a critical inflection point. 2026 marks the beginning of a recovery phase, thus shifting the tone from resilience to optimism. There seem to exist opportunities emerging for investors and occupiers alike.

Macroeconomic Backdrop

According to Deloitte’s 2026 commercial real estate outlook survey- most respondents still believe that key market conditions: such as rental rates, leasing activity, vacancy levels, and the cost of capital; will improve through 2026. About 65% of those surveyed expect better conditions, slightly lower than last year’s 68%.

While macroeconomic uncertainty remains, commercial real estate fundamentals tend to adjust gradually rather than overnight. As a result, steady growth is still expected across most asset classes and geographies. Sustained optimism is, however, not without some hesitations. [Deloitte]

• Economic Growth: U.S. GDP growth exceeded expectations in 2025 and is on track to reach a solid 1.9%. Looking ahead to 2026, growth is expected to remain steady at around 1.7%, signaling continued economic resilience rather than a sharp slowdown. A major driver of this performance is the ongoing AI boom. Investment in data centers, advanced computing equipment, and AI-linked technologies has become a meaningful contributor to economic growth. More than half of the GDP growth in 2025 is estimated to come from AI-related capital investments, supported by strong equity market performance tied to the sector.
• Employment: Job growth is expected to remain modest, but unemployment should stay low enough to support steady wage and income growth. On the policy front, the Federal Reserve is anticipated to lower the Fed Funds Rate to around 3% by late 2026 from the current rate of 3.64%. At the same time, the 10-year Treasury yield is likely to remain broadly stable. Together, these trends point to a more predictable and favorable interest-rate environment, which should support commercial real estate performance across asset classes.
• Inflation & Interest Rates: Inflation is expected to continue to be challenging issue. Before the impact of tariffs, most inflation measures were moving closer to the 2.0% target. Since then, however, those trends have reversed, and the inflation pressures are picking up again. Despite these risks, recent signals from the Federal Reserve suggest that monetary policy is likely to become more accommodative. The Fed is expected to gradually reduce its policy rate toward a neutral level of around 3.0% by the second half of 2026. Long-term interest rates, however, are less likely to fall meaningfully.
• Debt Markets: Lower borrowing costs and historically tight credit spreads are driving renewed activity in commercial real estate debt markets. Commercial mortgage originations by banks, insurance companies, and private credit lenders are all rising at double-digit rates. At the same time, valuation resets are bringing investors back to the market. Early signs of price stabilization are encouraging fresh fundraising and selective capital deployment, marking the early stages of a new commercial real estate cycle.

[Source: Cushman & Wakefield]

Sectoral Outlook

The 2026 outlook shows differentiated performance across sectors. Some markets are stabilizing or normalizing, others are redefining demand drivers, and a few are emerging as structural winners. Below, we break down the sectoral outlook with insights drawn from industry forecasts and market research. [Source: Colliers]

Multifamily-

• Multifamily has led commercial real estate investment sales since 2015, and that trend is not expected to change. That said, its share of total investment volume may ease slightly as investors direct more capital toward office properties, data centers, and retail assets.
• As long as the job market remains stable, multifamily occupancies are expected to improve in 2026, setting up stronger performance in 2027 and 2028. With fundamentals strengthening, rent growth in 2026 is projected to exceed 2025 levels and extend across a larger number of markets.
• Absorption is expected to slow from recent highs as the market takes time to adjust. With fewer new projects moving forward, supply pressures should ease. Development starts are likely to bottom out in 2026, before improving fundamentals create demand for new supply in 2027 and beyond.
• Additionally, CMBS delinquency rates have risen over the past year, pointing to emerging stress in parts of the market. Feedback from the industry suggests special servicers remain active and expect more assets to come to market. Transitional properties and assets financed at peak valuations are facing refinancing challenges, and more of these situations are likely to surface over the next year.

Data Centers & Digital Infrastructure-

• Capital is actively looking for ways to benefit from the AI boom. With almost every quarterly earnings cycle, technology companies continue to report that demand is running ahead of available capacity, pushing capital spending higher. As a result, billions of dollars are being invested across the entire AI and data infrastructure value chain, a trend that is expected to continue into 2026.
• The scale of planned data center expansion is unlike anything seen before. Governments at the local, state, and federal levels are working together to speed up power availability, while direct investments in power infrastructure are making headlines. Ongoing advances in technology and supportive policy measures are expected to open up even more opportunities in 2026.
• Demand for data center space remains extremely strong. Vacancy rates are expected to stay at or near all-time lows in 2026. Preleasing activity is robust, and while new speculative development may add some pressure, overall vacancy levels are likely to remain historically tight.

Office-

• AI companies are playing an increasingly important role in shaping the U.S. office market. Since 2024, AI firms have been a major source of leasing activity in the San Francisco Bay Area, where large technology tenants have taken up significant blocks of previously vacant office space. At the national level, however, the picture is more mixed. As AI begins to replace or automate many entry-level roles, recent college graduates are facing a tougher job market. This shift may reduce overall office space needs for some companies over time.
• According to Colliers’ 2026 outlook, office vacancy rates are expected to improve from their 2025 peak, potentially falling below 18% by the end of 2026 as demand slowly recovers and outdated office buildings are removed from inventory or converted to other uses. Asking rents stabilized toward the end of 2025 as markets adjusted to new pricing realities. In 2026, rents are projected to rise modestly by 1%–2%, supported by tightening vacancies, limited new construction, and shrinking availability in high-quality, Class A buildings.
• The office construction pipeline declined to 31 million sq ft by the end of 2025, as high material, labor, and financing costs in 2024 and 2025 discouraged new projects. Development activity is expected to pick up again in 2026, with new deliveries coming online around 2028. At the same time, an increasing amount of obsolete office space is being converted to residential, hotel, or life science uses, helping reduce excess supply in key urban markets.

Industrial & Logistics-

• Industrial occupiers are expected to continue reshaping global supply chains in 2026, driven by geopolitical tensions, labor constraints, technology adoption, sustainability goals, and operational efficiency needs. Despite broader economic uncertainty, industrial demand and new supply are becoming more balanced, although the pace of adjustment varies across markets. Industrial space under construction has declined by about 62%, bringing development close to its cyclical low ahead of the next expansion phase. As a result, a more balanced industrial market is coming into view.
• Industrial vacancy has been rising across the U.S. for the past three years and is projected to peak near 7.6% in early 2026. Beyond that point, stronger demand combined with limited new supply should help stabilize vacancy levels.
• Construction activity has slowed sharply since its 2022 peak. Space under construction has fallen from 711 million sq ft in 2022 to roughly 270 million sq ft, a 63% decline and the lowest level since 2018. Development is expected to bottom out near 260 million sq ft in 2026, with new project starts remaining below long-term historical averages.
• Leasing momentum is strengthening across buildings of all sizes, pointing to rising demand heading into 2026. Net absorption is expected to exceed 220 million sq ft, about 37% higher than 2025 projections. Rent growth, however, is likely to remain modest at 1%–4% in 2026, unless supported by especially strong local market conditions. In oversupplied markets, rent growth may be slower as tenants gain greater negotiating power.
• Industrial user demand in 2026 reflects a mix of macroeconomic caution and strategic repositioning. Leasing activity, tenant proposals, and active requirements increased in the second quarter of 2025 compared with the first, as more occupiers began prioritizing long-term supply chain investments despite ongoing uncertainty. (PwC)

Retail-

• Retail demand is expected to stay positive through 2026, supported by steady leasing activity and very limited new supply. While some malls and shopping centers may experience short periods of negative absorption, consistent demand for general retail space should keep overall net absorption in positive territory.
• Consumer spending is showing mixed signals. About 34.4% of consumers plan to spend less in 2026, but a clear majority of 65.6% expect to maintain or increase their spending. As a result, retail vacancy rates are projected to remain largely unchanged through 2026, as stable tenant demand offsets the lack of new supply. Market rents are expected to increase by around 1.5% in 2026, supported by steady space availability and slower, but still positive, retail sales growth.
• New retail construction is forecast to decline by 37% in 2026, as developers remain cautious amid ongoing economic uncertainty. Although total new deliveries will stay below historical averages, continued redevelopment of existing centers and adaptive reuse projects will help upgrade aging retail properties and support overall market stability.

Healthcare-

• Hospital systems and healthcare providers are expected to further increase the development of facilities located closer to patient populations in 2026. The shift toward outpatient care continues to accelerate, as growth in procedures and revenues far exceeds that of inpatient services. Since 2020, outpatient revenue has risen by 45%, compared with 16% growth for inpatient care, and is projected to increase by another 10.6% over the next five years.
• Investor demand remains strong, supported by aging demographics. The population aged 65 and older is expected to grow from 61 million in 2024 to 70 million by 2030, pushing healthcare spending toward $2 trillion. With limited new supply and rents rising nearly 2% year over year, medical office building (MOB) fundamentals remain very strong, supporting continued investor interest through 2026.
• Health systems and provider practices continue to lease space at a steady pace, a trend expected to persist in 2026. National vacancy for medical office buildings remains below 8% and is forecast to stay stable, as growing healthcare needs prompt providers to expand their operations.
• Rent growth, which has averaged about 0.8% per quarter since early 2022, is expected to continue due to sustained demand and constrained supply. While construction faces challenges from higher material and labor costs and elevated interest rates, new projects are still expected to move forward in select markets where demand clearly exceeds available space.

Lifesciences-

• Public company valuations remain about 30%–40% below their 2021 highs, but they have started to recover since April 2025. If this recovery continues into 2026, it could allow more companies to move forward with IPOs, helping rebuild investor confidence and support a rebound in venture capital activity.
• In 2025, several major pharmaceutical and biotech firms announced billions of dollars in new domestic investments. This trend toward onshoring is expected to continue in 2026, driven by a mix of strategic and economic factors such as rising global tariffs, supply chain risks highlighted by the COVID-19 pandemic, national security concerns, and changing federal incentives and regulations.
• Vacancy conditions in the life sciences real estate market could begin to improve in 2026. By the end of 2024, vacancy across major markets had climbed to nearly 19%. Some of the pressures limiting demand (weaker company valuations, tighter venture funding, and policy uncertainty) are likely to ease up in 2026. Given the long-term strength of life sciences product demand, even slight improvements in these areas could lead to a significant space absorption. New development activity is expected to remain limited, particularly for speculative lab projects in the largest life science hubs.

Hospitality-

• High-income households, representing the top 10% of earners, are expected to be the main drivers of hotel room demand in 2026. At the same time, travelers with lesser incomes are shifting away from expensive international trips toward domestic, value-oriented destinations. This trend should support occupancy at economy and midscale hotels. As leisure travelers increasingly look for unique and experience-driven trips, unpopular destinations too are seeing renewed interest.
• According to Green Street, hotel demand is projected to grow by about 1.3% per quarter next year. However, hotel properties are expected to see slower NOI growth, improving from -3.6% in the first quarter to -1.2% by the fourth quarter of 2026. If capitalization rates remain stable, this moderation in NOI growth could put some pressure on investment pricing.
• Rising costs for materials, property management, insurance, and labor continue to challenge the sector. With near-term demand softening, developers are becoming more cautious. Green Street projects hotel supply growth of 1.3% in 2026, slightly lower than the 1.4% growth seen in 2025.

Key Risks to Monitor in 2026

While certain aspects of the U.S. commercial real estate market seem to stabilize in 2026; some challenges continue to loom:

1. High Interest Rates & Refinancing Risks: Although financial conditions have improved, commercial real estate continues to face pressure from high borrowing costs and a significant refinancing wave. Roughly $1.7 trillion in commercial mortgages are set to mature through 2026, much of it issued during the low-interest-rate period of the early 2020s. Properties financed during that time may find refinancing difficult, as today’s higher rates can strain cash flows and weigh on valuations, particularly for highly leveraged assets. Elevated interest rates are also limiting transaction activity and investor demand, since the cost of capital plays a central role in meeting return targets. According to Deloitte’s 2026 outlook, concerns around borrowing costs and access to capital are still reducing risk appetite across most commercial real estate sectors. (Sterling Asset Group & Deloitte)
2. Uncertain Office Market Recovery: The office sector’s recovery remains uneven and highly localized, with most demand focused on high-quality buildings in major gateway cities. Across the broader market, vacancy rates remain elevated and leasing activity is weak for older, lower-quality assets, largely due to hybrid and remote work trends that continue to reduce overall office space demand. While some improvement is visible in top-tier submarkets, the growing gap between strong and weak office locations increases the risk of distressed sales and further valuation declines, particularly in secondary and tertiary markets. (Colliers)
3. Electric Power Shortage: In fast-growing sectors like industrial real estate and data centres, access to reliable infrastructure: especially power has emerged as a major constraint. Many industrial projects are facing delays of at least 12 months as developers struggle to secure enough electrical capacity to support modern logistics and manufacturing operations. These delays raise financing costs and push back expected cash flows, which can reduce overall project returns and asset values, making infrastructure availability a growing risk factor in industrial and data centre development. (PwC)
4. Rising Insurance Costs & Climate Risks: Industry leaders are well aware of how physical climate risk and the shift toward net-zero emissions are reshaping real estate insurance and finance. These pressures are already showing up through higher property insurance premiums and tighter lending and underwriting requirements. However, many investors and asset managers are still trying to fully understand how these changes will affect long-term cash flows and, ultimately, property values across real estate portfolios. (PwC)

Strategic Implications for Investors & CRE Professionals

1. Be Conservative with Stress Testing: With refinancing risks and interest rates remaining volatile running thorough stress tests is essential. Valuation models should account for multiple interest rate and rent growth scenarios, rather than assuming a rapid return to pre-pandemic conditions. This approach helps surface potential downside risks and ensures capital is deployed in line with an investor’s risk tolerance. Attention should also be focused on strengthening the core fundamentals of assets that may be under stress. Clear communication with lenders and investors about recovery strategies and plans to restore asset value is also essential.
2. Informed Asset Quality & Location Selection: As we have read above, that the demand patterns will be diverging sharply across sectors and submarkets, asset selection is primary. Investors should emphasize well-located, high-quality properties with strong tenant profiles, longer lease terms, and resilient income streams.
3. Reset Underwriting Assumptions: CRE leaders should reassess how they evaluate deals, assets, and debt strategies in today’s market. Underwriting assumptions need to reflect higher financing costs and higher exit cap rates, rather than relying on pre-pandemic norms. In some cases, selling assets or repurposing projects may be a more prudent option than continuing to hold them.
4. Due Diligence on Climate & Insurance Risk: With rising insurance costs and limited coverage in climate-sensitive areas, commercial real estate professionals need to incorporate climate resilience into underwriting and risk models. Tools like the PRA standard can help measure future hazard exposure, guiding decisions on site selection, retrofit investments, and portfolio diversification.

The 2026 commercial real estate outlook shows that one-size-fits-all strategies no longer work. Investors and operators will face a market where sector fundamentals differ widely: from office stabilization and industrial normalization to expanding data centers and resilient retail.

Success will depend on quality, location, and strategic positioning. Whether allocating capital, evaluating redevelopment projects, or underwriting new deals, 2026 will reward disciplined, informed, and sector-specific approaches.

In a real estate market year that is projected to be as diverse, underwriting can’t be generic. We provide rigorous, scenario-tested underwriting designed to adapt to CRE realities. Connect with us at info@therealval.com to evaluate opportunities and walk through 2026 with confidence!