The outlook for commercial real estate: CRE chartbook

Summary

The outlook for commercial real estate (CRE) is brightening. The Federal Reserve's monetary easing cycle has generated stronger capital flows, increased transaction volumes and firmer property price appreciation. Such momentum is likely to continue given our anticipation for the FOMC to deliver two additional reductions to the federal funds rate in the first half of 2026. CRE supply and demand should also move toward better balance against a backdrop of buoyant demand and thin development pipeline. All told, less restrictive monetary policy and resilient economic growth appear poised to propel the commercial real estate market forward in 2026.

• Economic growth poised for continued resiliency

We look for annual U.S. real GDP growth of 2.3% in 2026 on a more supportive fiscal policy environment and less restrictive monetary policy setting.

• CRE capital returning

Cuts to the federal funds rate are generating a broad-based rise in lending. MBA's origination index rose 22% year-to-year in Q3-2025, with most major capital sources continuing to show growth.

• Transaction volumes improving

Transaction volumes were up 13.2% on a year-to-date basis through October, with gains across most major asset classes.

• Property prices gaining momentum

Overall valuations were up 4.2% year-to-year in October, the strongest annual gain since 2022. Most asset classes and markets are registering positive annual growth.

• Supply and demand coming into better balance

Vacancy rates, for the most part, are still elevated but no longer rising sharply. The wave of CRE construction has peaked, and (outside of data centers) there is very little in terms of new commercial projects getting started. Meanwhile, resilient economic growth should continue to support CRE Demand.

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