REAL ESTATE NEWS

Commercial real estate investors are entering 2026 with cautious optimism, as the market anticipates additional rate cuts and long-term yields around 4%, potentially driving a 16% increase in investment volume this year, according to CBRE. Pricing is becoming more realistic and new listings are approaching levels last seen in 2022, signaling steady market improvement.

?I think that the clearest indicator of recovery of the cycle is investor appetite,? said Kevin Aussef, chief operating officer of Capital Markets at CBRE.

?We?re seeing a steady increase in the number of confidentiality agreements since the beginning of last year. Last year, CAs were approximately 20% over 2024 and 45% higher than in 2023.?

Bid sheets are also expanding, as increased activity and growing transaction volume provide sufficient market comparables to boost investor confidence in underwriting, Aussef added.

CRE?s relative affordability compared with other asset classes continues to attract attention, particularly as cap rates for most property types are expected to decrease by five to 15 basis points, with high-quality assets seeing the greatest compression. With benchmark rates remaining relatively elevated, returns are expected to be income-driven, placing a premium on careful asset selection and management, said CBRE.

?The most interesting part of the cap rate survey is that over the last few years, the range of estimates for office was pretty wide, but now we?re starting to see that narrow as we?re seeing more price stability, even price gains, especially in prime office space,? said Matt Mowell, senior macro economist at CBRE.

?Incomes are looking a little more certain.?

Notable volume growth is expected in both retail and office sectors. The office market is benefiting from companies making long-term leasing commitments and bringing workers back to the office. Recovery is being driven by strong investment volume from a relatively low base, with lower supply and high-quality space outperforming.

CBRE expects investor interest to expand to include well-located Class A properties as prime trophy assets become less available. Some lagging markets, including Chicago and Los Angeles, appear to be bottoming out, with Boston, Seattle and Denver expected to follow by year-end. Gateway markets with a strong presence of financial and AI-related companies are anticipated to offer compelling opportunities.

Industrial properties continue to absorb pandemic-era excess supply but remain highly sought after. Modern assets in key metros with population growth and transportation hubs are expected to outperform in 2026.

Multifamily is working through a supply overhang in parts of the Sun Belt and Mountain regions, while Midwestern and select gateway markets continue to maintain healthy fundamentals.

Hotels are expected to offer attractive opportunities as new supply diminishes and RevPAR improves, although recovery will be uneven and concentrated in high-end demand, making operational skill a key driver of income, according to CBRE.

Debt markets are expected to remain healthy in 2026, with all sources active. Alternative lenders will continue participating, while banks are poised to re-enter the market, particularly as the yield curve steepens.

Inflation has shaped CRE over the past few years, with the cost of capital exceeding cap rates in some cases and causing negative leverage, Mowell noted. As inflation normalizes toward the lower 2% range, investors are watching 20-year Treasuries to see if they will fall below 4%.

?If that happens, I think you'll see tighter bid-ask spreads,? said Aussef.

?Buyers will gain additional confidence in underwriting their cash flows, lenders will become more stable, more competitive and consistent, and more owners will think about testing the market. But I think you'll see more pencils come out before you see a flood of deals.?

Source: GlobeSt/ALM