Chapter 2
Capital Markets
U.S. Real Estate Market Outlook 2026
5 Minute Read
5 Minute Read
Trends to Watch
- U.S. commercial real estate is affordable:
Pricing for commercial real estate is relatively cheap compared with other asset classes. Investors continue to broaden their targets for capital allocation in commercial real estate, with retail and office expected to see notable volume growth in 2026. - Total returns will be driven by income in 2026:
With benchmark rates expected to remain relatively elevated, returns will be income driven. Market/asset selection, due diligence and asset management will be key ingredients for success. - Debt market will continue to function with tight spreads:
We expect debt markets to remain healthy in 2026, with all sources remaining active. There will be ample liquidity due to sizable amounts of dry powder from both public and private investors. The weight of capital presents an upside risk to our forecasts. - Gateway markets and AI/financial hubs will lead the recovery:
Companies are once again making long-term leasing commitments and requiring workers to return to the office. Gateway markets with a strong presence of financial and AI-related companies will continue to offer compelling investment opportunities.
Outlook
Commercial real estate investment activity is expected to continue recovering in 2026. With market sentiment potentially buoyed by the prospect of additional rate cuts and long-term yields around 4%, we expect a 16% increase in investment volume this year.
Investor demand remains strong: In 2025, CBRE executed the most confidentiality agreements with prospective property buyers since 2022. Sellers are becoming more realistic on pricing, with new listings nearing levels also not seen since 2022. All of this indicates continuing improvement across the investment landscape in 2026.
Cap rates for most property types are expected to decrease by 5 to 15 bps. Good-quality assets are expected to see greater cap rate compression. However, total returns will largely be driven by income. Consequently, asset selection and management will be key drivers for returns this cycle.
The office market continues to recover, with strong investment volume growth from a relatively low base. Less new supply and outperformance of high-quality space will persist. We expect investor interest will broaden to include well-located Class A properties, as spillover demand from prime trophy assets occurs. Lagging office markets, including Chicago and Los Angeles, are bottoming out, with Boston, Seattle and Denver expected to follow by year-end 2026.
Industrial properties continue to work through excess supply that materialized following the pandemic-era construction boom. Nevertheless, industrial remains a preferred property type for investors. Modern assets in key metros with population growth and transportation hubs will outperform. Renegotiation of the U.S. Mexico Canada Agreement in 2026 should also result in intriguing investment opportunities.
Figure 3: U.S. Commercial Real Estate Investment Volume
The office market continues to recover, with strong investment volume growth from a relatively low base. Less new supply and outperformance of high-quality space will persist.
Retail continues to show strength across the board with healthy fundamentals amid little new supply. Risk-adjusted returns look especially attractive in well-located grocery-anchored and open-air centers. Given the affordability challenges for less-affluent consumers, investors will find the best rent growth in areas that cater to higher-income households.
Multifamily is also working through a supply overhang, particularly in some markets across the Sun Belt and Mountain regions. Midwestern markets and some gateways continue to maintain healthy fundamentals. Cap rate spreads remain tight, indicating normalizing rent growth and weight of capital. Investors will find opportunities to dispose of assets and realize gains, which can then be redeployed into high-growth markets as supply and demand come into better balance in late 2026.
Hotels will also present attractive investment opportunities in 2026. We expect fundamentals to improve as new supply diminishes and RevPAR improves. Nevertheless, the recovery in fundamentals will be uneven and more focused around high-end demand. Furthermore, operational prowess will be especially important in a business where controlling costs is complex and total returns are more dependent on income.
While alternative lenders are expected to remain active, the reemergence of banks in the debt market is expected in 2026, particularly as the yield curve steepens. Overall, we expect all sources of debt capital to remain active.
CBRE expects lending spreads over benchmark rates will remain tight, barring any unforeseen shocks to financial markets. While lending standards remain prudent, we may see loan structures and covenants ease as lenders exhibit an increased willingness to provide commercial real estate financing. We expect that many maturing loans will be extended to 2027 and beyond. Overall, the commercial real estate lending environment will remain healthy, with abundant liquidity in 2026 even as default rates increase for obsolete assets.
Figure 4: Cap Rates by Sector
Contact
Capital Markets
Related Insights
-
Clarion’s Brent Jenkins and CBRE’s Zaahir Syed discuss how capital raising for real estate is rapidly evolving. They provide insights on fund development, non-traded REITs, emerging opportunities in private wealth markets and more.
-
CBRE Market Outlook Romania report looks at the evolution of all real-estate segments. Find out which are the trends to watch in 2026! Download the report!
Insights in Your Inbox
Stay up to date on relevant trends and the latest research.