CRE Shows Signs of Thaw as Uncertainty Falls and Capital Loosens: ValTrends Webinar, 1Q 2026

After a year defined by policy shocks, volatile sentiment and stalled deal activity, early signs suggest commercial real estate (CRE) markets are beginning to stir. That was a central takeaway from the latest ValTrends First Look webinar held January 20, led by Peter Muoio, PhD, Senior Director, SitusAMC Insights, and Jen Rasmussen, PhD, Vice President, SitusAMC Insights. The presentation examined recent macroeconomic data, investor behavior, capital markets conditions and sector-level fundamentals. 

While challenges remain—from elevated refinancing risk to uneven sector recoveries—the data increasingly points to a market adjusting to lower uncertainty and gradually improving financial conditions. 

Policy Uncertainty Eases from 2025 Highs 

Economic policy uncertainty continued to recede into year-end. In December, the U.S. Economic Policy Uncertainty Index declined 8% month over month, reaching its lowest level since President Trump took office. Uncertainty levels are now more than 55% below the April peak, when tariff announcements drove the index to record highs. 

That said, uncertainty remains elevated relative to long-term norms and roughly in line with levels seen around the 2020 election, underscoring that the policy backdrop has stabilized, but not normalized. 

Economic Growth Holds Up as Labor Market Cools 

Meanwhile, recent economic data paint a mixed but resilient picture. Third-quarter GDP expanded at an annualized 4.3%, the strongest pace in two years, fueled primarily by consumer spending. At the same time, the labor market continues to cool. Payroll growth slowed to 50,000 jobs in December from 56,000 in November, while the unemployment rate edged down to 4.4%. 

Layoffs remain below long-term historical averages, but hiring has fallen to its lowest level since 2016. The result is a “low hires, low fires” labor market—cooling but not contracting. Inflation, meanwhile, remains sticky. Headline consumer price index (CPI) held steady at 2.7% in December, while core CPI ticked up slightly to 2.6%, both still above the Federal Reserve’s target. These crosscurrents have left long-term interest rates largely rangebound, with the 10-year Treasury hovering near 4.16%. Although that range is roughly 50 basis points lower than a year ago, rates have seen little movement in recent months. 

Financing Conditions Improve as Capital Discipline Eases 

Financing conditions have begun to loosen. After remaining largely flat through most of 2025, average commercial and multifamily mortgage rates began declining in September and were down roughly 20 basis points by early January. Spreads also compressed by about 20 basis points, as Treasury rates remained stable while mortgage rates declined. 

SitusAMC's proprietary survey of investors shows growing confidence. CRE preference relative to traditional asset classes remained at its highest level of the past year in the fourth quarter and above its historical average, reflecting CRE’s perceived safe-haven appeal. Since mid-2023, optimism toward CRE has steadily improved compared with stocks and bonds. 

At the same time, both buy and sell recommendations increased in the fourth quarter—an early signal that market participants may be preparing for renewed activity as rates settle lower. Notably, the recommendation to buy reached one of its highest levels since the Fed began its aggressive tightening cycle in mid-2022. 

Capital availability also improved materially. Equity discipline fell to its lowest level on record, while debt discipline reached its lowest point since 2015. Equity and debt availability are now at their highest levels in three years, though still below long-term averages. Underwriting standards remain more conservative than historical norms. 

Transaction Activity Still Lagging Sentiment 

Despite improving sentiment and capital availability, deal activity has yet to follow. CRE transaction volume fell more than 50% month over month in November, reaching its lowest level since April 2024. All major property types experienced declines, with industrial hit hardest, down nearly 35%. Multifamily proved most resilient, declining just 5.5%. 

Across sectors, transaction volumes remain at least 30% below their eight-year averages, highlighting the persistent disconnect between improving financial conditions and realized market activity. 

Cap Rates and Pricing Signal Tentative Stability 

Fourth-quarter cap rate data showed stability across most property types. Industrial was the lone exception, with cap rates compressing 10 basis points to their lowest level in more than two years. On a year-over-year basis, multifamily and industrial cap rates have each tightened 20 basis points, though all sectors remain historically elevated. 

Pricing trends were similarly muted. Industrial prices rose 0.5% in November and are up 5.1% year over year, leading all sectors. Office prices increased 3.4% over the year, while apartment prices declined 1.4% and remain below their five-year average. 

Shorter Leasing and Marketing Times Hint at Market Thaw 

Less visible—but telling—signals of market thawing are emerging. Re-leasing downtime, which peaked in early 2024 at its highest level since the Global Financial Crisis, has declined steadily and returned to pre-Covid levels. Marketing time—the period required to secure a buyer for an institutional-quality property—also fell in the fourth quarter after peaking earlier in 2025. 

These improvements are particularly evident in alternative sectors. Medical office and data centers are trading at a record pace, while marketing times for affordable housing, self-storage and senior housing are below historical averages. Student housing marketing times have normalized to long-term norms. 

Lending Activity Rebounds, Led by Multifamily 

CRE lending activity has strengthened. According to PERE Credit, lending surged year over year to $20.5 billion in September and October, up from $14 billion during the same period the prior year. Multifamily dominated originations, accounting for 39% of loans, followed by industrial at roughly 15%. While the Fed’s recent 25-basis-point rate cut has yet to materially affect long-term rates, improved lending momentum suggests credit markets are gradually reopening. 

Residential Pressures Persist Across Housing Segments 

Multifamily fundamentals remain uneven. Rent concessions remain elevated in Sunbelt metros such as Phoenix, where more than half of listings offer at least one month of free rent amid oversupply of luxury units. Phoenix rents declined 4% year over year, though analysts expect concessions to fade within 12 to 18 months, as construction slows. 

On the single-family side, a proposed ban on large institutional investors purchasing homes briefly rattled markets, though the policy’s impact on affordability appears limited. Recent data show that mid-sized investors—not large institutions—have driven the rise in investor activity, while large players increasingly focus on build-to-rent developments that add supply. 

Refinancing Risk Concentrated in Office, Sector Fundamentals Diverge 

Refinancing risk remains a key concern. Roughly 10% of loans would be in negative equity if refinanced at current valuations, according to MSCI Mortgage Debt Intelligence. Office faces the most acute pressure: more than 20% of office debt maturing in 2026—about $22 billion—is tied to properties with insufficient collateral value. Other traditional sectors show far lower exposure. 

Office fundamentals remain challenged, with vacancy rates expected to hover around 20% through 2030 despite accelerating office-to-residential conversions—particularly in New York City, now the nation’s leading conversion market. Industrial vacancies were revised upward near term but are projected to decline sharply beginning in 2027 as elevated completions taper off. Retail fundamentals were largely unchanged, with improvements expected starting in 2027 as absorption accelerates. Retail rent growth is projected to exceed 2.5% by 2030. 

A Market Adjusting, Not Yet Recovering   

While consumer spending remains concentrated among high-income households—introducing longer-term vulnerability—the broader CRE market shows growing signs of adjustment. Lower uncertainty, improving capital availability, shorter transaction timelines and selective sector strength suggest conditions are gradually thawing.  

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.