CRE Momentum Stalls as Rates and Uncertainty Rise: ValTrends Webinar, 2Q 2026

After a promising start to the year, commercial real estate (CRE) markets are once again facing headwinds. Renewed geopolitical tensions, rising Treasury yields, and persistent inflation concerns have disrupted early optimism and reinforced a familiar pattern of stalled momentum. Those themes were central to the ValTrends First Look webinar held April 23, led by Peter Muoio, PhD, Senior Director, SitusAMC Insights, and Jen Rasmussen, PhD, Vice President, SitusAMC Insights. The webinar examined capital markets conditions, investor sentiment, transaction activity and sector-level performance.

While certain segments show resilience and pockets of opportunity are emerging, the broader market remains constrained by elevated rates, tightening capital conditions and growing signs of stress across both property fundamentals and credit performance.

Treasury Volatility and Geopolitical Risk Weigh on Outlook

Long-term interest rates remain a central challenge. The 10-year Treasury has fluctuated in recent months but continues to hover in an elevated range around 4.24% to 4.3%, consistent with levels seen over the past three to four years.

Recent geopolitical developments, including conflict in the Middle East, have added upward pressure on rates by fueling inflation concerns tied to rising energy prices. That has curbed expectations for lower rates and improved deal flow. “The optimism at the start of has been short-circuited,” Muoio said. “We can't seem to get out of this pattern...like when you get into a weather pattern where it's beautiful during the week when you're working and then every weekend it rains.”

Investor Sentiment Turns Defensive as Cash Gains Favor

Investor preferences shifted notably in the first quarter. According to SitusAMC’s proprietary survey, cash is king. “Amid escalating geopolitical tensions and their effects on interest rates, cash popped up as the highest asset class preference,” Muoio said. Bond preferences also increased over the quarter, while CRE declined and moved into a tie with bonds for second place.

This more defensive stance is reflected in allocation strategies. The share of investors recommending a “hold” strategy increased from 63% to 70%, while buy recommendations declined from 30% to 26% and sell recommendations fell from 7% to 4%. Despite the decline, the buy rating remains near its 10-year average, reinforcing that interest in deploying capital persists even as uncertainty delays action.

Capital Discipline Tightens as Availability Pulls Back

Capital conditions have become more restrictive. Equity discipline tightened in the first quarter following a record low in the fourth quarter, when it reached a 10-year low. Debt markets show a similar shift toward selectivity. 

“Investors are being very selective in the current environment, with a focus on high-quality assets and top-performing markets,” Muoio explained. With that shift comes heightened discipline, reduced capital availability and longer transaction timelines.

Transaction Activity Drops to Two-Year Low

Market activity reflects these tighter conditions. According to MSCI Real Assets, transaction volume declined nearly 20% in the most recent reporting period to approximately $30 billion—the lowest level in roughly two years.

Multifamily was the hardest-hit sector in January, highlighting the impact of both elevated supply and shifting investor sentiment. The decline underscores the ongoing disconnect between improving expectations earlier in the year and realized deal activity.

Cap Rates and Pricing Show Minimal Movement

Valuation metrics remain relatively stable with modest shifts across sectors. Industrial cap rates increased 10 basis points in the first quarter and now sit roughly 30 basis points above their long-term average. Office cap rates rose 5 basis points and remain about 100 basis points above historical norms.

Multifamily and retail cap rates both compressed by 10 basis points and are now nearing their long-term averages, suggesting relative stabilization in those sectors.

Pricing trends show similarly limited movement. Apartment prices increased 0.4% in February—the strongest monthly gain since July 2022—and are now at their highest level in nearly two years. Industrial prices also rose 0.4% over the month, reaching record highs.

Retail prices declined 0.3% month over month, falling to their lowest level since December 2024. Office prices edged down just 0.1% in February, effectively flat, though notably remain positive on a year-over-year basis since April 2024. Within office, bifurcation persists, with CBD prices declining 0.1% while suburban office increased 0.1%.

Leasing Trends Weaken Across Core Property Types

Operational indicators softened in the first quarter. Renewal probabilities declined across all major sectors. “Compared to history, office fell off the cliff,” Muoio said, dropping 60 basis points quarter over quarter and 750 basis points year over year. Retail and industrial renewal probabilities each fell 70 basis points, while multifamily declined 80 basis points, reflecting broader tenant caution across property types.

In contrast, alternative sectors showed meaningful improvement. Affordable housing posted a 470-basis-point increase in renewal probability, reaching its highest level since the fourth quarter of 2024. Self-storage and senior housing each rose 370 basis points, while data centers increased 190 basis points and medical office gained 160 basis points.

Credit Stress Intensifies Across Sectors

Financial stress continues to build. “Notably, every major sector has seen increased distress levels year-over-year,” Muoio said. CMBS delinquency rates rose 40 basis points in March to 7.6%, the highest level since January 2021, according to Trepp. Office led the increase, rising 50 basis points to 11.7%.

Multifamily delinquencies reached their highest level since tracking began in 2019. Special servicing rates climbed 30 basis points to 11%, surpassing the pandemic peak of 10.5%. Retail special servicing rates declined slightly by 10 basis points but remain near recent highs. 

Office Draws Renewed Interest Despite Weak Fundamentals

Investor sentiment toward office has shifted meaningfully. After remaining in a narrow range of roughly 0% to 4% for an extended period, office preference jumped to 22% in the fourth quarter of 2025. In the first quarter, that figure moderated to 16%, still well above recent norms and indicative of renewed interest.

This shift is driven in part by repricing. “Though the fundamentals in the segment remain weak, I think people are looking at how far prices have fallen and are optimistic that the segment is in the process of feeling for the bottom,” Muoio explained. “The second thing really is the changing nature of work, which derailed office in during the COVID-19 pandemic.” 

The stabilization of hybrid work patterns is also helping clarify long-term demand, while office-to-residential conversions—particularly in markets like Manhattan—are creating new avenues for value creation. Even so, fundamentals remain weak. Vacancy rates exceed 20%, absorption remains negative, and rent growth is subdued. 

Performance continues to vary significantly at the micro-market level, where factors such as economic conditions, demographics, walkability, and safety are increasingly influencing outcomes. SitusAMC Insights has developed a tool to analyze micro markets. For example it found significant variations in performance between 55th Street and Park Avenue and 50th Street and Eighth Avenue in Manhattan, which are less than a mile apart. “Activity on the micro-level is something investors and lenders are increasingly paying attention to,” Muoio noted.

Multifamily Faces Pressure from Elevated Supply

Apartment fundamentals remain under strain as new supply continues to weigh on performance. Approximately 17% of stabilized units are offering concessions—the highest share in more than a decade—with average discounts reaching about 11%.

“Concession usage has risen across all regions, but is concentrated in the south, where more than 20% of units are offering discounts,” Rasmussen explained. Austin, Denver and San Antonio topped the list, with 30% or more of units offering concessions. 

Vacancy forecasts have been revised upward in the near term due to a stronger supply pipeline in 2026. However, conditions are expected to improve beginning in 2027, with vacancy rates projected to decline and rent growth to strengthen as supply pressures ease.

Industrial Outlook Softens, Data Centers Face Challenges

Industrial fundamentals have moderated. Vacancy projections were revised upward, representing the largest increase among major property types, as weaker absorption outweighed declining completions. While near-term rent growth expectations were upgraded, longer-term projections have been revised downward, reflecting a more balanced supply-demand outlook over time.

Meanwhile, data centers continue to exhibit strong fundamentals. Vacancy rates reached a record low of 1.4% at year-end 2025, while average asking rents climbed to nearly $170 per kilowatt. However, both vacancy compression and rent growth have begun to slow since early 2024.

At the same time, the sector faces mounting challenges. “We're seeing community resistance to data centers growing,” Rasmussen said. “Many localities are looking to pause data center initiatives amid the rising power costs and water concerns.” That’s particularly acute in  major hubs like Northern Virginia.

Despite these headwinds, demand remains robust, driven by artificial intelligence. Estimates suggest more than $3 trillion will be required to build the infrastructure needed to support future demand. As of the third quarter of 2025, unstarted leases tied to major AI companies totaled approximately $569 billion.

View the ValTrends Look Ahead webinar presentation here. Our 24-page ValTrends report will come out at the end of the quarter. Subscribe to be notified as soon as the report is available, and we’ll send a link to download it for free. For more information on SitusAMC Insight’s research, analytical tools or data products, visit our website.