1. Normalizing liquidity…finally
Last five years: The most aggressive Fed hiking cycle since the 1980s made negative leverage an unusual reality for CRE: The cost of debt often exceeded implied cap rates, pushing investors up the capital stack and suppressing equity values and transaction activity.
Next five years: The forward setup is meaningfully different, and we expect a pickup in transactions and valuations. First, policy rates have already fallen by 175 bps from their recent peak, with a bias to ease further in 2026—lowering hurdle rates and compressing required equity returns. Second, CRE debt spreads, which blew out post‑COVID, have retraced toward pre‑COVID ranges—reducing the cost of capital. Third, interest rate volatility has declined toward pre‑COVID norms—evidence that confidence is returning.
Our empirical work supports this view. Using the MOVE Index—a proxy for U.S. bond market volatility—we find a materially negative year‑over‑year correlation with CRE transaction growth (r ≈ −0.64 in our sample), with volatility changes leading transactions by roughly four quarters. Because fund appreciation reflects appraisals that lag private market prints, total returns tend to inflect roughly six quarters after volatility declines; transactions inform appraisal values. If history is a guide, the calmer rate backdrop seen in the second half of 2025 and today should translate into higher transaction volumes and stronger CRE total returns in the back half of 2026.
Bottom line: Cheaper, more predictable financing and tighter spreads reopen capital channels, advance price discovery and reward equity for value creation. Even if the recovery remains uneven across sectors and markets, the setup points to higher valuations and more deals over the next several years.
2. After the e‑commerce boom
Last five years: The post‑COVID surge in e‑commerce adoption was a defining theme in CRE over the last five years. It drove unprecedented industrial demand and outperformance, while putting physical retail under pressure as consumers shifted overwhelmingly toward digital channels.
Next five years: E‑commerce is entering a more subdued growth phase. Online sales growth has moderated, and the gap between online and brick‑and‑mortar growth has narrowed—ushering in a new chapter for CRE. With growth normalizing, logistics‑focused occupiers are prioritizing efficiency over network expansion. Warehouse leasing has slowed and sector performance is reverting toward trend; a return to 2021–2022 leasing levels is unlikely.
At the same time, supported by a resilient U.S. consumer, very limited new supply and reduced competitive pressure from e‑commerce, retail landlords find themselves in an unfamiliar position: too much demand and too little space. As retailers refine omnichannel models that integrate stores with digital channels and local fulfillment, they are rediscovering the importance of strong brick‑and‑mortar locations. In short, retail is back.
Separately, the industrial story is beginning to pivot from distribution to production. Advanced manufacturing demand is rising and is more power‑intensive locations with abundant, reliable power should command a premium (more on this in next month’s Portfolio Insights).
3. Office performance: From drag to driver?
Last five years: Office was undoubtedly the most challenged sector. Remote work emptied buildings, tenants paused major leasing decisions, vacancies climbed, debt markets seized up, transactions fell and valuations declined 41%1—raising existential questions for the sector.
Next five years: After a prolonged winter, signals are that spring is around the corner for the office sector. A growing chorus of corporate executives are calling employees back, and return‑to‑office metrics have rebounded from COVID troughs. Net absorption turned positive in 2H 20252 as companies leased space for returning staff, reducing availability and vacancy. At the same time, supply is tightening as developers have pulled back sharply. Construction starts are down 82%3 from the peak and with elevated conversion activity, stock is even declining in some markets, setting a more favorable supply backdrop.
Capital market conditions also appear to be shifting from a headwind to a tailwind. Negative sentiment pushed office cap rates up more than any other major sector4 but as fundamentals improve and liquidity returns, cap rates appear to have peaked and are beginning to trend lower. This creates the potential for outsized appreciation as they normalize. Recent performance reflects the turn in office capital markets: For the first time since 2020, the sector's total returns have outperformed the benchmark. Trophy assets are faring particularly well as tenants and capital concentrate in the best locations and buildings.
Challenges remain, but strengthening fundamentals, improving capital markets and changing sentiment point to mean reversion, and the potential for above‑trend performance ahead.
4. Residential: Time to get picky
Last five years: U.S. housing faced persistent undersupply and widespread unaffordability—fueling investor overconfidence and compressing yields (especially in 2021–2022), which pushed multifamily development to multi-decade highs.5
Next five years: With deaths projected to outpace births in the U.S. beginning in 2030 and recent shifts in policy suppressing immigration, demand growth for housing is set to be more restrained. Portfolios will need to be constructed more selectively.
For one, investors will need to consider shifting their residential allocations toward subsectors aligned with national demographic shifts—especially housing tailored to older households. Active adult and seniors housing are the most obvious targets, but even single-family rentals are likely to benefit from an aging U.S. population. As the millennial generation, the largest age cohort in the U.S., ages into their 40s, they'll be looking to move out of apartments and into single-family homes, and single-family rentals will help bridge the gap for those unable to make the immediate jump to homeownership.
Investors will also need to stay cognizant of market demographics. Overweighting markets with healthier demographic balances—places with a sufficient pipeline of younger households to backfill aging populations—are more likely to exhibit stable housing demand, bolstering returns. In addition, in a low immigration environment, tracking of domestic migration will take on heightened significance. Access to near real-time migration data (like we have through aggregated Chase customer data) will give managers an edge to proactively adjust market allocations as flows evolve.
5. Asset selection regains its relevance
Past five years: Performance dispersion across property types was extreme: Industrial soared, office struggled and the gap between leaders and laggards far exceeded long‑term norms. Top‑down allocation was king—overweights to industrial drove outsized returns, while the wrong tilts proved costly.
Next five years: Dispersion has narrowed sharply over the past year—the spread between the best and worst sectors is just over 4%, a far cry from the double‑digit gaps of the early 2020s. As returns converge across property types, broad positioning will still matter, but asset selection is set to regain relevance.
Success will hinge on choosing assets with clear tenant appeal. In addition, active management—repositioning underperformers, optimizing tenant mix and investing in value‑add upgrades—will be critical to driving outperformance in a compressed return environment.
To be clear, sector allocation will remain important. As managers raise extended-sector exposure—ODCE6 is roughly 15% today, up from ~8% four years ago,7 with many targeting 20%–30%8 in the near term—the choice of which alternative property types to invest in (or avoid) will be critical for outperforming the benchmark.