Commercial real estate 2026: what to expect

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The economy in 2025 was not as strong as expected, but that shapes the outlook for commercial real estate in 2026. The economy is slowing, unemployment is rising and construction is taking a bit of a breather in most sectors.

Both tariffs and entry restrictions have been increased this year. Together, these have increased costs for builders and developers. But interest rates are also coming down and we are slowly, albeit cautiously, starting to free up more capital.

Here’s what you can expect in the year ahead.

Words like “new equilibrium” (Colliers), “stronger fundamentals” (Cushman & Wakefield), “continued recovery” (KBW), and “signs of price stabilization” (CoStar) are used in the wide variety of outlook reports published by nearly every commercial real estate company and its associated consulting and financial services firms.

Looking to the year ahead, CRE leaders are slightly less optimistic heading into 2025, according to a Deloitte survey of 850 global CEOs and their direct reports from major real estate owner and investor organizations in 13 countries. 83% of respondents said they expect earnings to improve by the end of 2026, up from 88% last year. Few respondents said they planned to increase spending, but many expected spending to remain flat. Still, 68% said they expected their spending to increase in 2026.

Most respondents expect the cost of capital to improve, with most asset classes expected to see growth. Deloitte research shows that overall sentiment is lower than last year, but well above what it will be in 2023.

Looking specifically at the United States, Cushman & Wakefield predicts that the commercial real estate sector will enter 2026 with renewed momentum, a clearer outlook, and increased optimism in both leasing and capital markets conditions. The report said the economy was more resilient than expected this year, driven largely by artificial intelligence, despite uncertainty around tariffs, a volatile policy backdrop, immigration tightening and episodes of financial market stress.

“The atmosphere is changing significantly as we head into 2026,” said Kevin Thorp, chief economist at Cushman & Wakefield. “While there are still risks on both sides of the outlook, peak levels of uncertainty are behind us and confidence in the CRE sector is growing. Capital is flowing back in, interest rates are trending lower, and leasing fundamentals are generally stabilizing or improving. If 2025 was a test of resilience, 2026 has real potential to pay off.”

Colliers predicts that capital is re-engaging and the industry is “entering a new equilibrium.” Forecasters there point to a bottoming out in office demand and new growth for the industry, also thanks to AI.

PwC also highlighted that capital inflows began to resume “but selectively” in the second half of the year.

According to the PwC report, “The trading environment rewards those who can combine data-driven insights with strategic conviction. The challenge and opportunity for clients is to navigate a landscape where liquidity, technology and integration redefine what it means to create value in real assets.”

The proportion of investors who said they planned to increase their investment in commercial real estate over the next six months fell in the fourth quarter of this year from the previous quarter in all sectors except retail, according to a study by John Barnes Research and Consulting. Investor sentiment in multifamily housing has worsened for the fourth consecutive quarter.

“Investors cited headwinds such as rising interest rates, economic uncertainty, and local regulatory burdens. 49% of investors expect to maintain their CRE exposures at current levels over the next six months, similar to the past two quarters,” the report said.

“Reawakening of Capital Markets” – This is the Colliers headline, stating that pricing has found a floor and trading speeds are increasing. Colliers expects sales volumes to increase by 15% to 20% in 2026 as institutional investors and cross-border capital re-enter the market.

According to CoStar’s forecast, capitalization rates appear poised to fall further next year. The data is already showing signs of this in the multifamily and industrial sectors, where vacancies are peaking and rent increases are accelerating.

CoStar also said in its report that deal activity is picking up, with sales volumes up more than 40% year-over-year in the third quarter, and that banks are “moving back into commercial real estate lending.”

Bond markets are following suit, showing a new appetite for risk. Koster noted that the yield spread between government and corporate bonds has narrowed to about 1 percentage point (well below the historical average), which typically portends increased real estate investment and stable prices.

This is in line with Cushman & Wakefield’s outlook, which says debt costs will ease in 2025, lenders will re-enter the market and institutional capital will return, “supporting a broader revival of trading activity.”

Cushman & Wakefield said lending was up 35% year-over-year, institutional sales activity was up 17% through October, and pricing “has significantly reset, presenting the market with attractive opportunities for yield and income generation.”

The office market is now widely believed to have bottomed out, with asset prices showing early signs of stabilization.

Colliers said vacancy rates are expected to fall below 18% as more tenants return to the market, take advantage of expiring leases and prioritize hospitality-focused workplaces that support hybrid working.

Class A buildings in many markets are now nearly full, and the flight to office quality is likely to continue. Office construction is also at its lowest level in more than 30 years, Yardi said.

Cushman & Wakefield predicts continued growth for San Francisco. San Jose, California. Austin, Texas. New York; Atlanta; Dallas; and Nashville, Tennessee, recorded strong positive absorption in 2025, supported by AI expansion and job diversification.

“For large office users looking to secure quality space, the message is clear: once you find the right space, be bold,” said James Bohnaker, chief economist at Cushman & Wakefield. “There is strong demand for new, quality space, but there is not enough space, and with a limited construction pipeline, space will become even tighter.”

The industrial sector also saw a significant decline in construction, with a 63% decline since 2022, according to a Colliers report. Vacancies have peaked, with net absorption expected to jump to 220 million square feet as reshoring, manufacturing and data centers stimulate demand.

Retail is already undergoing major changes in how and where businesses rent space, said Brandon Svek, national director of U.S. retail analytics at CoStar.

He pointed to approximately 26 million square feet of ground floor retail that will be leased in the first three quarters of 2025 in non-traditional real estate, including multifamily housing, student housing, hospitality and offices.

Retailers are shrinking their footprint, with the average retail lease signed over the past four quarters falling below 3,500 square feet for the first time since CoStar began tracking it in 2016. This is primarily driven by restaurant and service operators such as Starbucks, Chipotle, Chick-fil-A, Jersey Mike’s, Dunkin’, and McDonald’s. Svek noted that walkable, mixed-use retail environments have become more attractive over the years. Traditional big box format. However, he has a warning.

“Significant uncertainty remains about the impact of tariffs on already vulnerable consumers. Suppliers and retailers have largely absorbed these costs to date, but many businesses have indicated that price increases are imminent. Consumers are already showing signs of consumer fatigue, and tariff-related price increases could further strain household budgets and curb discretionary spending,” Subek said in the report.

Multifamily rents are starting to ease as record levels of new supply continue to come through the pipeline.

According to the Colliers report, “Multifamily has led investment sales since 2015, and there is no sign of this changing. However, multifamily’s share of total sales is expected to decline slightly as investors direct more capital to offices, data centers, and retail.”

Data centers are king in 2025, with demand far exceeding supply. Deloitte called the sector “a clear bright spot in the U.S. commercial real estate industry.” The report identified nine major global markets where 100% of new construction pipelines are already fully pre-leased.

But data centers face headwinds in areas such as funding, grid capacity, zoning and local politics.

Colliers predicts that “friction is rising as local communities oppose data center development. Several projects have already been canceled, and more are expected to be shelved in 2026.”

According to a PwC report, public-private REIT deals and portfolio mergers are likely to dominate the coming year as public valuations lag behind private market pricing. That will be determined by considering size, governance credibility and cost of capital.

“As capital converges, AI uncovers inefficiencies and platforms converge, we expect M&A to accelerate. Real assets are entering a new phase defined by intelligence, integration, and scale-driven opportunities,” said Tim Bodnar, global real estate transactions leader at PwC.

Real estate investment trust stocks may actually lag in 2025, but could outperform in 2026, according to forecasts from REIT industry group Nareit. This points out that there is a gap between stock market valuations and REIT valuations, and a continuing gap between public real estate valuations and private real estate valuations.

“These could close and one or both could occur in 2026. If they close, we expect the REIT to outperform based on our proprietary historical analysis and continued strong operating performance and balance sheet,” the report said.