Clone of CRE Valuations Hold Steady as Capital Markets Head Into 2026: Debt & Equity

Commercial real estate (CRE) markets remained largely in a holding pattern in the first quarter, with limited movement in values and forecasted total returns of 5% to 6% for the year, driven mainly by income. That’s according to SitusAMC Field Notes, a proprietary data analysis that integrates the perspective of our CRE professionals across the organization, offering investors real-time market insights ahead of many traditional CRE sources.  

SitusAMC is seeing heightened lender competition and increased balance sheet lending, alongside stable debt valuations with modest widening in spreads. Securitization activity, especially for collateralized loan obligations (CLOs), has been strong. Special servicing volumes are rising, driven by office exposure, upcoming maturities and the unwinding of prior “extend‑and‑pretend” strategies. Retail and alternative assets are outperforming, while apartment, industrial and high‑quality office values are mostly stable.

Valuation Trends

• With capital markets decelerating, SitusAMC isn’t seeing much change in values, rents, or occupancies—pointing to a steady holding pattern ahead.
• Watch for values to be stable to slightly higher, though industrial assets face market rent capture challenges and multifamily values remain under pressure.  
• The 2026 NPI-ODCE annual total return will roughly 5% to 6%, driven by about 2% to 2.5% value growth, SitusAMC forecasts. Capital expenditures (CapEx) of 1% to 1.5% will offset this return.  

Amid a slowdown in capital markets, SitusAMC sees limited material movement in values, rents or occupancies, auguring a steady holding pattern. In 2025, the worst of the downturn appeared to be past, and SitusAMC anticipated no significant bounce back. That same outlook carries into 2026. Heightened uncertainty caused by the Iran War further complicates the forecast. Values are expected to remain stable to slightly higher, which may be underwhelming for some investors, but reflects current market realities. Some softness persists, including the ability to capture market rents on some industrial assets.

For those properties in coastal markets, performance hinges on whether values start to stabilize or continue to slip. Multifamily assets are also seeing some value pressure due to strained budgets and higher expenses. Overall, the forecast for 2026 is an NPI-ODCE total return of roughly 5% to 6%, driven by modest value growth of about 2% to 2.5%. This is offset by capital expenditures (CapEx) in the 1% to 1.5% range. That puts net capital returns at about 0% to 1%, with most of the return—around 4.5%—coming from income.

Property-Type Valuation Trends

• Multifamily values are flat to slightly down amid budget and expense pressure; capital markets remain active; supply is expected to slow down in late 2026 and 2027.
• Industrial prices are holding flat-to-slightly positive for high-quality, low-risk deals; a construction pullback is offsetting elevated vacancies; some markets are offering concessions to maintain face rents.
• Office valuations are mostly steady; leasing momentum is strong for top-quality assets and in many gateway coastal markets such as New York; life science fundamentals are poor.
• Healthy retail tenant demand, rising rents and controlled expenses are supporting net operating income (NOI); investor interest is broad-based across subtypes, with best-in-class asset cap rates compressing.
• Alternative sectors are outperforming, led by senior housing; self-storage appears to have reached an inflection point; data centers are seeing big AI-driven demand and high rents, but face significant challenges from CapEx requirements and other issues.

Apartment Sector: Values are flat-to-slightly down as appraisals begin to incorporate 2026 budgets. Expenses are up marginally, which are sometimes not fully offset by rent gains. Cap rates and investment yields remain largely unchanged, with year-one cap rates around 5%. Capital market sentiment is optimistic, with debt capital expected to be active and buyers still allocating to the segment.  

A meaningful tapering of new supply is anticipated in late 2026 and into 2027, giving buyers more confidence in their underwriting. Fundamentals are bifurcated geographically, with the Sunbelt, particularly Austin and Charlotte, still working through heavy supply pipelines. Portland is also suffering on the demand side, though future supply is very low. Coastal markets are generally outperforming. San Francisco stands out as a recent winner, with strong demand, double-digit trade-outs, and rents returning to pre-COVID levels driven by strong tech and AI-related employment growth.  

Across the country, the high cost of homeownership—about 30% more than renting a Class A apartment—continues to support steady demand. However, rent stabilization policies in markets like New York are adding uncertainty.

 Industrial Sector: Market conditions remain subdued, with transaction activity mostly concentrated in two areas: sales of buildings going to end users and high-quality assets in good locations that have long-term leases with credit tenants. Prices are holding flat-to-slightly positive for these types of sales. Class A assets with strong tenants are seeing cap rates generally converge around 5%. Nationally, vacancies are elevated, but new construction has slowed sharply or stopped in many markets, supporting expectations that rents will mostly be flat as excess space is absorbed. Landlords in high-vacancy markets such as Northern New Jersey are offering higher concessions such as free rent in order to hold face rents steady.  

Southern California shows early signs of rent stabilization. Los Angeles and Inland Empire West appear to have bottomed out while Inland Empire East is still under pressure. Select green shoots are emerging, including institutional capital moving into industrial outdoor storage (IOS) and small-bay infill assets tied to local service-oriented tenants. This reflects a search for embedded growth and more insulated demand drivers, though broader momentum has yet to materialize.

Office Sector: Valuations are generally steady unless there is an asset- or market-specific catalyst. Tenant flight-to-quality persists, with trophy Class A properties growing in demand while Class B and below are vacant and struggling. Leasing momentum is clearly improving in a handful of core markets, led by New York City, Silicon Valley/San Francisco, the Bellevue area of Seattle and Boston. 

In New York City, leasing velocity remains strong. Leases are accretive to value even after factoring in higher tenant improvements. Contract rents are outpacing the projected rents in the market leasing assumptions, especially in Midtown and Hudson Yards. Across New York City, SitusAMC is seeing market rent growth of 3%.  

Silicon Valley leasing activity, particularly Sunnyvale, continues to benefit from AI-driven demand, where proximity to transit is a sought-after amenity. Downtown San Franciso is also seeing strong leasing activity. Market rent growth across San Francisco/Silicon Valley is about 3%, with the potential for rent spikes in late 2026. Capital availability for office is modestly improving, but remains skewed toward value-add strategies. There are ongoing concerns about oversupply and the continuing capital reallocation away from the sector, leading some owners to delay dispositions for another year in anticipation of better pricing.  

Life science continues to see high vacancies and downward pressure on rents due to excess supply following an increase in office conversions over the past few years. However, there is an emerging trend of reconverting life science properties to traditional office or industrial purposes, which may boost absorption but will likely lease at lower rents than originally underwritten.  

Retail Sector: Fundamentals remain solid, with NOI supported by healthy tenant demand, increased rent levels and controlled expenses. Vacancy and credit loss assumptions are easing, especially when compared to the Covid-era stress. Investor demand is relatively strong, with grocery-anchored centers still the most sought-after subtype, but meaningful interest also extending to lifestyle centers, power centers and selectively to regional malls.

Transaction activity spans deal sizes, including larger trades above $300 million, though cap rates tend to widen modestly at the upper end given a thinner buyer pool. Asset quality is a key differentiator, with best-in-class retail across subtypes capable of achieving cap-rate compression. Though bankruptcies and department store consolidations pose headwinds for the segment, tenant sales remain resilient. From a performance standpoint, retail has quietly delivered the strongest total returns among major property sectors since 2023. This is driven by durable income returns and limited previous run-ups in valuations, making retail well-positioned going forward.

Alternative Property Types: These sectors are showing stronger relative fundamentals, led by senior housing. It’s still benefiting from a strong imbalance between supply and demand as the oldest baby boomers reach the age when assisted living becomes necessary. This is pushing occupancies toward 90% with projections approaching the mid-90% range by 2028. New supply remains extremely limited due to high capital costs and the replacement cost gap. Rent growth in senior housing remains robust at roughly 3% to 6% year-over-year. Operating expenses, including labor, food and supplies, are stabilizing. Operators have begun leveraging AI to improve staffing efficiency and resident monitoring, which is increasing margins.

Self-storage: This segment appears to have reached an inflection point, with national year-over-year advertised rents turning positive for the first time in several years. However, performance remains uneven. Markets such as Tampa, Charlotte and Atlanta, which saw a large increase in supply over the past few years, are having difficulty pushing rents. High-barrier markets such as those in the Northeast and coastal regions are seeing stronger rent growth as operators use existing customer rate increases to push tenants to higher market rates.  

Data Centers: This sector is experiencing seemingly insatiable demand and high rents, driven by rapid AI adoption, particularly from hyperscaler tenants. However, there are major operational issues surrounding sustainable power and water resources. CapEx for data centers is astronomical and technology is constantly changing.  

While most investors want to enter this space, underwriting is tightening, particularly in instances where there is high leverage. Locations that offer access to cooling sources, more sustainable power options (nuclear, wind and solar) and lots of available land present opportunities, but these locations also need to be relatively close to the end user.  

Servicing, Advisory & Asset Management Trends

The loan origination market continues to be focused on production with shops and banks working toward their 2026 goals. “Cautious optimism” is coming back into the CRE lexicon, despite uncertainty—war in the middle east, rising oil prices and movement in the market. The number of bank and non-bank lenders has increased, boosting competition for deals. Certain borrowers are reaping the benefits from new lending groups looking to expand market share.  

SitusAMC is seeing an uptick in balance sheet lending and continued loan pool acquisition opportunities. There’s still a lot of discussion around private credit, which has become a significant part of the CRE debt market. While these investments and loans span a range of industries, they can still influence CRE—for example, through data center lending.

Debt Valuation Trends

CRE debt valuation conditions remain generally stable, though credit spreads that had been flat to tightening prior to recent geopolitical disruptions have begun to widen modestly. We see the potential for further widening if uncertainty persists. Even so, spreads remain meaningfully tighter than longer-term historical norms.  

Office valuations are gradually improving as lenders work through extensions, restructurings and resolutions. A key development on the debt side is rising stress among private credit and alternative lenders as investor redemption requests have grown following softness in the software sector. This stress is prompting a sharper focus on the need for transparent, and more frequent valuations, particularly for syndicated loans.

Private equity funds are increasingly focused on valuations due to regulatory and market pressures. Private equity shops are increasingly moving into defined contribution capital, requiring more periodic valuations.  

CRE Securitization Trends

The conduit market saw a wave of issuance early in the year, largely backed by existing collateral, with additional deals now targeted for late spring to early summer. Rising interest rates, particularly at the 10‑year point, are pushing borrowers away from long-duration loans and toward five‑year conduits.  

SitusAMC has seen a notable increase in interest-only structures being used to get conduits to market. The CRE CLO market has accelerated meaningfully, with issuance volumes in the first few months of the year already matching full-year totals from 2025. Investor appetite remains strong despite renewed geopolitical volatility, suggesting market participants are increasingly pricing uncertainty into the deal rather than pulling it off the market. Deal pricing has been relatively favorable and pipelines are rebuilding.  

SitusAMC is seeing a lot of first-time issuers, which points to either the attractiveness of the product or the issuer’s need to clear its line. Today’s rising interest rate environment is unlikely to have a substantial effect on the CLO market. It will cost more to cap loans, but the market has priced in higher interest rates as it has been operating in this environment for years. Of interest, SitusAMC is seeing more “true” series CLOs (e.g., transitional multifamily, hospitality-to-multifamily conversions, build-to-rent) in this cycle than in the 2021 heyday when issuance hit a record high.  

Special Servicing Trends

Special servicing activity started the year at a strong pace. Through mid-March, SitusAMC was named on roughly $5 billion in new issuance, primarily for single asset single borrower (SASB) deals, but also at least one CLO deal. For active loans, special servicing is seeing a wave of maturities. Office continues to dominate the SASB special servicing workload, and the upcoming 2026 and 2027 maturities are expected to sustain elevated activity levels over the next few years.  

On the transfer side, three SASB loans moved into special servicing in the first quarter, primarily due to maturity defaults. SitusAMC is seeing an uptick in multifamily transfers and in the CLO space. Smaller loan activity remains generally steady across workouts and new inflows.  

SitusAMC is monitoring some weaknesses in Sunbelt multifamily. Special servicing is running up against advancing issues for master servicing due to the “extend-and-pretend” strategies utilized over the past few years, especially in the SASB space. Master servicing agreements are limiting the ability to do extensions, leading to the liquidation of assets sooner than anticipated.        

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