Six themes shaping our Mid-Year 2026 Outlook for Commercial Real Estate (CRE):
1. Real assets for a real-rate world
Rising rates may seem like a headwind for CRE, but history suggests the opposite is often true. Since 1965, CRE returns have been positive 85% of the time rates rose. The reason is that rate increases frequently coincide with a strengthening economy — one that supports higher occupancy and rents and, in turn, higher property cash flows. In most cases, that growth has more than offset the valuation pressure from modestly higher rates, supporting a constructive outlook for CRE going forward.
2. Office demand is returning — and quality is the differentiator
After years of headwinds, an office recovery is coming into focus — workers are returning, net absorption is positive, and vacancy has fallen for four consecutive quarters. Office total returns are climbing and are now roughly in line with or slightly ahead of the benchmark for three straight quarters. However, performance is strongest at the top end of the quality spectrum, where new and trophy office buildings continue to attract the most demand and enjoy the tightest conditions.
3. Capture AI growth — manage concentration risk
AI is proving to be a tailwind for real estate demand, powering employment growth across multiple industries, which is showing up in diverse leasing activity. However, in sectors outside of private CRE, AI concentration is growing and correlations rising. Investors need to consider these trends when building multi-asset portfolios as private CRE is one of the few asset classes that has minimal direct exposure to AI, negative correlations with stocks and bonds and still has the potential to provide outsized appreciation.
4. Made in America: The reshoring of industrial demand
Geopolitical tensions and national security priorities are pushing critical manufacturing back onshore, creating a new and durable source of industrial demand. The opportunity is primarily focused in high-power manufacturing assets, but is spreading to include other related subsectors.
5. Brick & mortar retail is built to last
Retail has been the best-performing major property sector for the last three years and the outlook remains bright. Years of limited construction have preserved landlord pricing power, and with physical stores increasingly used to service online orders, the case for well-located brick & mortar retail has never been stronger. A K-shaped economy continues to provide support for top-tier centers, while at the other end of the barbell necessity and service-based centers enjoy growing foot traffic by servicing the day-to-day needs of the average American, creating a broad set of investment opportunities.
6. Ownership may be the dream, but renting is the reality
Demand for rental housing has a strong tailwind with homeownership out of reach for a growing share of households. Tenant retention is near historic highs, the supply wave is ebbing and the setup into 2027–2028 is increasingly constructive. An aging population is creating additional opportunities in single-family rental (SFR) and age-restricted housing.