- Commercial real estate is set for stabilization and recovery in 2026, following a challenging 2025.
- Capital markets are reawakening, with increased deal activity and renewed institutional interest.
- Data centers and industrial sectors remain strong, while office and multifamily segments show early signs of bottoming out.
- REIT M&A activity is expected to rise as valuation gaps narrow between public and private markets.
Market Stabilization After Economic Slowdown
Commercial real estate faced headwinds in 2025 due to a slower economy, higher unemployment, and increased tariffs, reports CNBC. These factors led to a drop in construction activity and cautious investor sentiment. However, falling interest rates are beginning to stimulate capital flows and support stabilization across most sectors.
Forecasters from major firms predict cautious optimism in 2026, with industry reports noting the emergence of a “new equilibrium,” “firmer fundamentals,” and “ongoing recovery.” Most CRE leaders expect improved revenues, but with higher expenses and selective capital allocation.
Capital Markets Reignite
Capital markets in commercial real estate are showing signs of recovery. Colliers forecasts a 15-20% increase in sales activity for 2026 as institutional and cross-border capital returns. Lower capitalization rates are anticipated, especially in the multifamily and industrial markets where vacancies have peaked and demand is rebounding.
Deal volume is rising, and lenders are gradually increasing exposure to commercial real estate. Cushman & Wakefield highlights increased lending, a reset in pricing, and revival in institutional activity supporting the market. Tightening spreads between government and corporate bond yields indicate more risk appetite and potential for strengthened real estate investment.
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Sector Performance and Shifts
The office sector is stabilizing, with vacancy rates expected to dip below 18% as tenants seek higher-quality, hospitality-driven spaces. New office construction is at historic lows, driving up competition for Class A assets. Key markets like San Francisco, Austin, and New York are set for growth, supported by AI industry expansion.
The industrial sector has seen a sharp decline in new builds, but demand remains strong. Reshoring, advanced manufacturing, and the data center boom continue to drive absorption and help offset elevated vacancies. Retail is also evolving, with more leases in nontraditional spaces and smaller store formats as consumers remain cautious under tariff pressures.
Multifamily is seeing softening rents and ongoing high supply, which may weigh on investor confidence. In contrast, data centers continue to show strong demand. Deloitte reports all new supply in major global markets is preleased, though the sector faces hurdles with zoning, financing, and local opposition.
REITs and Investment Strategies
Investors expect more public-to-private deals and portfolio mergers among REITs as firms pursue scale and operational efficiencies. Analysts anticipate valuation gaps between public and private real estate markets will narrow in 2026. This outlook builds on recent performance trends, where REITs have shown resilience despite broader market uncertainty. Broader capital strategies will emphasize tech integration, adapting to regulations, and focusing on resilient sectors like data centers, industrial, and select office and retail assets.
