Chapter 1
Economy
U.S. Real Estate Market Outlook 2026
5 Minute Read
5 Minute Read
Upside Despite Uncertainty
While concerns about the economic impact of tariffs have subsided, new concerns about overinvestment in artificial intelligence (AI), government debt levels and a softening labor market are building. GDP growth is expected to slow to 2.0% in 2026 from 2.3% in 2025 due to less business investment and consumer spending.
Companies will face tough decisions to balance persistent inflation with investments needed for continued growth. Although there were a number of large corporate layoffs in 2025, most companies remain slow to hire and fire. More use of AI will likely play a minor role in labor market dynamics in 2026. We expect labor market conditions to soften as companies carefully reduce headcount. Job growth for the year is expected to slow to 0.3% from the annual average of 1.1% since 1990. This should result in a higher unemployment rate, particularly for younger entrants to the labor market.
Figure 1: CBRE 2026 Economic Outlook
Source: CBRE Research, December 2025.
The slowing labor market is impacting the largest component of the U.S. economy—the consumer. Retail sales growth has slowed, with affluent households carrying a greater share of overall consumption. This dynamic will be even more prevalent in 2026. Marginally lower inflation at 2.5% should alleviate some of the pricing pressure on more value-conscious households.
The combination of persistent inflation and higher unemployment will complicate the Federal Reserve’s decision-making. Because price pressures are expected to fade later in the year, CBRE believes the Fed will focus on downside risks facing the labor market and cut the federal funds rate only twice in 2026 to a target range of 3.0% to 3.25%.
The pathway for longer-term rates has decoupled from the federal funds rate. Aside from elevated inflation, concerns about U.S. debt levels are putting upward pressure on long-term Treasury yields. But the prospect of slower economic growth suggests that Treasury yields could end the year below 4%. Regardless, the yield curve will likely steepen, allowing financing via shorter-term credit to help drive commercial real estate investment volume.
Figure 2: Consensus Expectations for 10-Year Treasury Yield
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