CRE Borrowing Costs Hit a Floor as Rate Relief Fades

CRE rates remain cheaper than a year ago, but quarter-to-quarter relief has nearly disappeared.

Nina Dale
August 24, 2026

In partnership with

CRE Borrowing Costs Hit a Floor as Rate Relief Fades

Good morning. The rate-cut tailwind is fading for CRE. Borrowers are responding by shifting toward fixed-rate financing as the outlook moves from “lower for longer” to potentially higher from here.

🎙️ This Week on No Cap: What does it take to bring a downtown back? Bedrock CEO Jared Fleisher takes us inside Detroit’s transformation. (Thanks to our sponsor, Warespace)

CRE Trivia 🧠

What bank's collapse in September 2008, with $307B in assets, remains the largest bank failure in American history?

IN PARTNERSHIP WITH TERRAKOTTA

The World's 1st CRE iMessage Tool Goes Viral

The world’s 1st CRE Research Analyst for iMessage went viral last week.

Here are 3 powerful CRE automations that you can run with it:

Automation #1: Find Motivated Sellers & Off-Market Deals

In just 1 text message, Terrakotta scans your market for the most advanced selling signals and gets you contact info of owners looking to sell.

Automation #2: Get Market Insights Before Everyone Else

Terrakotta is always listening for the following: new listings, zoning updates, ownership transfers, tenant expansion news, distress signals, etc.

Automation #3: Run CRE automations from your phone

For the first time in CRE history, you can now run the following automations from iMessage: Pull sales comps, skip-trace LLCs, build lead lists, etc.

Terrakotta has some of the most powerful AI capabilities for CRE prospecting. Just describe who you want to call (owners or tenants), and Terrakotta returns verified contact info & property data in seconds.

That’s why CRE professionals use Terrakotta to close multi-million dollar deals.

For a limited time only, try Terrakotta's iMessage agent for free.

*This is a paid advertisement. Please see the full disclosure at the bottom of the newsletter.

Market Snapshot

S&P 500

GSPC

7,674.37

Pct Chg:
+0.43%

FTSE NAREIT

FNER

860.05

Pct Chg:
-0.12%

10Y Treasury

TNX

4.732%

Pct Chg:
+0.034%

CME Term SOFR

1-Month

3.67%

Pct Chg:
-0.00

*Data as of 08/21/2026 market close.

Rate Floor

CRE Borrowing Costs Hit a Floor as Rate Relief Fades

The cheapening of CRE debt lost momentum in Q2 2026 as SOFR leveled off and Treasury yields climbed, pushing borrowers toward fixed-rate financing.

The rate floor: After nearly two years of declines, SOFR averaged 3.62% in Q2, down just 4 bps from Q1, while Treasury yields moved sharply higher, according to Altus Group. The 5-Year Treasury climbed 32 bps to 4.09% and the 10-Year rose 22 bps to 4.42%, even as lender competition remained healthy, with borrowers receiving an average of 5.3 competitive quotes for new financing.

Borrowers pivot to fixed: With further Fed cuts looking less likely, financing activity shifted away from floating-rate debt. Fixed-rate senior short-term quotes surged 28% from Q1 and represented 28% of all quotes, up from 21%. Floating-rate senior short-term quotes fell 16%, with their market share dropping five percentage points to 34%.

Spreads provide some cushion: Lenders continued tightening spreads, particularly on floating-rate loans. Lower-leverage floating senior spreads fell to 239 bps over SOFR, while repo and facility spreads dropped 30 bps to 176 bps. Fixed-rate compression was more modest, leaving borrowers more exposed to rising Treasury yields.

The easy savings are over: Across property types, average all-in borrowing costs declined just 4 bps from Q1, compared with a 45-bp drop in Q4 2025. Rates remain 71 bps below year-ago levels, but most sectors saw borrowing costs flatten or rise during the quarter as higher Treasury yields offset tighter spreads.

Office gets another look: Office financing continued showing signs of rehabilitation. The sector accounted for 19% of quotes, up from 17% in Q1, while average office borrowing costs slipped 3 bps to 5.84% and were 78 bps below last year. Trophy office financing held at 5.67%, while medical office fell to 5.58%. Retail also gained lender attention, rising to 20% of quote activity from 17% in Q1.

Sector check: Apartments remained the cheapest financing category at 5.22%. Residential averaged 5.33% and industrial 5.40%, though both increased modestly during the quarter. Hotel financing posted the largest property-level increase, rising 25 bps to 6.07%, while construction fell 26 bps to 6.08%, helped by a sharp reversal in office construction pricing.

➥ THE TAKEAWAY

Lock it or risk it: CRE borrowing costs remain well below year-ago levels, but the quarter-to-quarter improvement has largely stalled. If rates stay flat or move higher, today’s financing terms could start looking more attractive in hindsight.

✍️ Editor’s Picks

Multifamily expiration wave: The approaching wave of LIHTC multifamily property expirations is creating a unique investment opportunity with rents 20-40% below market rates and asset values 35% below comparable properties. (sponsored)
Redemption reset: Invesco is cutting fees 20% and committing up to $150M to its $12.7B real estate fund as it works to ease a $2.2B redemption backlog and rebuild investor confidence.
Office gamble: JPMREIT’s $1.75B portfolio is growing rapidly, but its first office investment is only 62% occupied, far behind its 99%-occupied industrial assets.
Maturity squeeze: More than $100B in CMBS loans is coming due over the next nine months, with higher refinancing costs, concentrated exposure and multifamily and office distress raising pressure on borrowers.

🏘️ MULTIFAMILY

Multifamily momentum: LA County commercial property sales jumped 28.5% to $2.1B in July, fueled by multifamily.
Vacancy tightens: Apartment vacancy fell to 4.5% as stronger household formation boosted demand and absorbed new supply, while higher mortgage costs kept more households in the rental market.
Office bottleneck: Boston has 2,331 proposed office-to-housing units, but high costs, financing hurdles and limited incentives are keeping most projects stalled despite strong developer interest.

🏭 Industrial

Sound off: Take our Q3 2026 Fear & Greed Survey in under five minutes to see where industry sentiment is heading.
Gillette expansion: Gillette acquired its South Boston development site for $99.29M and plans to invest nearly $1B in a new headquarters and innovation campus.
Industrial windfall: Jadian Capital acquired a fully leased 53-acre Staten Island industrial site for $167M, more than doubling Kadima’s original purchase price after $10M in capital improvements.
Houston foothold: INDUS Realty Trust entered the Houston market by acquiring a 757,000 SF logistics park that is 99% occupied and strategically located near major highways and the airport.

🏬 RETAIL

Nike retrenchment: Nike is closing at least 15 neighborhood-format stores as it streamlines its retail footprint amid weaker sales, tougher competition and broader restructuring.
Mall momentum: Mall traffic rose across all major formats in July, while longer visits signaled shoppers are spending more time browsing, dining and engaging.
Beauty boom: Beauty, wellness and fitness are capturing more retail space as rising consumer spending, frequent visits and limited new supply strengthen demand for these tenants.

🏢 OFFICE

Debt spiral: American Strategic Investment faces a potential bankruptcy within 12 months as defaults, falling occupancy and $249M in debt leave its remaining assets under mounting pressure.
DSCR strain: More than two-fifths of performing office loans with sub-1.00x DSCRs are backed by well-occupied buildings, highlighting debt costs, free rent and elevated expenses as key cash-flow pressures.
Medical resilience: Medical office continues to outperform traditional office, supported by durable healthcare demand, stronger value retention and a growing share of new development as the broader sector faces continued weakness.
Location matters: Office tenants are favoring high-quality buildings near talent, transit and amenities as stronger attendance expectations and tighter Class A supply reshape relocation demand.

🏨 HOSPITALITY

Airport upgrades: Surging air travel is driving billions in airport renovations and expansions as aging facilities race to improve capacity, passenger flow, security and revenue-generating amenities.
Hybrid rebound: Stabilizing telework and rising office visits are supporting a steady recovery in weekday hotel demand as business travel tracks the return to the workplace.

📈 CHART OF THE DAY

U.S. gross federal debt topped $40 trillion for the first time, underscoring growing concerns about the nation’s long-term fiscal trajectory even as economists focus more closely on debt relative to GDP.

Washington Mutual (WaMu). A 10-day run withdrew $16.7B in deposits before regulators seized it; JPMorgan Chase acquired its assets for $1.9B.