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CRE Valuations Hold Steady as Capital Markets Head Into 2026: Debt & Equity
In the fourth quarter of 2025, CRE valuations remained largely flat to slightly positive across most sectors, with performance driven by property-level fundamentals rather than investment rate changes. In addition, CRE debt and capital markets are expected to gain momentum in 2026, with rising demand for more frequent loan valuations, increasing CMBS issuance, strong CLO growth, and strong transaction volume supported by new funds.
That’s according to SitusAMC’s Field Notes, a proprietary data analysis that leverages our firm’s extensive touchpoints across the commercial real estate (CRE) landscape to provide a boots-on-the-ground perspective from professionals across the organization. It offers investors real-time market insights ahead of many traditional CRE data sources.
Valuation Trends
CRE valuations are tied to the long-term rate expectation, and despite recent volatility, long-term underwriting assumptions remain anchored to the 10-year Treasury yield stabilizing near 3.5%. Current valuations continue to reflect this expectation, with little movement in discount or cap rates anticipated absent a major capital markets shift.
Values are generally flat to slightly up across most sectors. However, after accounting for capital expenditures, which average about 30 basis points (bps) to 40 bps per quarter within a diversified portfolio, real returns are effectively zero. Performance differentiation is driven largely by property-level operations and leasing rather than rate compression.
Property-Type Valuation Trends
Multifamily values are flat to slightly up; rent growth is muted by oversupply, with the Sunbelt lagging other markets.
Industrial values are holding steady, with leasing and sales improving and absorption expected to outpace supply.
The office market continues to bifurcate, with Class A gaining and Class B declining, and leasing is up in New York City, Boston, San Francisco and Silicon Valley, driven by AI demand.
The life science sector is facing significant pressure from oversupply, weak demand, and declining values.
Retail fundamentals and valuations remain stable, with Sunbelt markets outperforming. Cap rates are bifurcated with grocery-anchored centers in the low 5% range and Class B malls as high as 9%.
Self-Storage values are flat to slightly up, with slowing supply supporting future rent growth.
Apartment Sector: Valuations remain flat to slightly positive, consistent with prior quarters. Investment rates are stable, with minimal adjustments tied to recent sales. Price discovery continues to support prevailing rates. Rent growth is muted overall due to lingering oversupply, though in-place rents have edged up modestly on a market-specific basis.
Solid performance is noted in the Midwest, Northeast and California, where supply additions have been limited. Conversely, many Sunbelt markets continue to struggle due to oversupply. SitusAMC is optimistic about future rent growth, with lower vacancy and positive absorption, as a slowdown in new development projects allows supply to taper off in the near term. There has not been much movement in expense growth; insurance costs have leveled off and are projected to remain flat into 2026. Value creation this quarter is primarily driven by property-level performance and cash flow adjustments.
Industrial Sector: Valuations are flat to slightly positive, supported by a long-term favorable outlook. That’s despite recent vacancy expansion, which appears to have stabilized. Market performance is highly submarket-specific: Dallas-Fort Worth’s small-bay segment and South Florida’s high-quality space show rent growth, while big-box assets face softness due to excess supply. Leasing and sales activity have increased since Labor Day 2025, aiding price discovery. Investors are prioritizing credit and lease term, with recent transactions reaffirming underwriting assumptions.
Office Sector: Office is experiencing a flight-to-quality dynamic, with valuations for Class A, well-located, amenitized assets starting to turn positive. Class B commodity properties continue to face declining values and occupancy challenges. Spec suite leasing remains a key strategy to attract tenants. Leasing velocity has improved in select markets—New York City, Boston, San Francisco and Silicon Valley—particularly for large blocks of space, with AI-related tenant demand contributing significantly. Near-term market rent growth is starting to rebound where leasing activity supports it. There is even some bifurcation within buildings, in which high-rise spaces are achieving rent growth of about 3%, while rents are flat in the mid- to low-rise spaces. There is not much movement in tenant improvements costs (TIs) and concessions, but stabilized occupancy rates remain stubbornly high. Investment sales activity has increased; institutional investors remain net sellers, reducing office exposure. In general, office investment rates are generally holding steady.
Life Science Sector: Life science assets continue to face severe headwinds from oversupply, weak demand and value declines. Landlords are turning to market rent reductions and other large concessions. SitusAMC is seeing some tenants vacate prior to their lease expiration due to funding cuts or bankruptcies.
Retail Sector: Retail fundamentals and valuations remain stable, underpinned by limited new supply. Despite isolated retailer bankruptcies (e.g., Rite Aid, Carter’s), backfilling has been swift. Fitness and gyms are expanding locations. Sunbelt markets, particularly Texas and the Carolinas, lead in absorption and rent growth. Transaction volume has increased, resulting in price discovery. Cap rates vary widely: top grocer-anchored centers are trading in the low-5% range, while Class B malls are trading as high as 9%. For other retail subtypes, valuations are expected to remain flat to slightly positive, with selective rent growth tied to property performance and contractual increases.
Self-Storage Sector: Overall, self-storage values are flat to slightly up. Sunbelt markets are digesting post-COVID supply, and future deliveries are slowing due to macroeconomic trends such as steel tariffs, rising construction costs and a slow housing market. Stabilized supply and steady demand should support rent acceleration into 2026, following a period of flat street rates year-over-year.
Debt Valuation Trends
Loan valuations remain steady; defaults are being managed.
Increased client demand for market clarity and best practices is driving more frequent valuations.
Loan valuations have remained relatively stable in recent months. Spreads are about 15 bps wider than January 2025, but have held flat recently, signaling steady credit conditions. While defaults continue, most are being managed through amendments and extensions, mitigating major disruptions. Although broader market data shows lower origination volumes, SitusAMC is seeing increased valuation-related loan activity driven by investor and fund manager demand for clarity on loan pricing. This trend has led clients to request more frequent valuations, with some moving from annual to quarterly assessments. Additionally, large private equity firms are expanding into 401(k) investment options, requiring more frequent marks. SitusAMC also continues to see new funds entering the market, with participants seeking monthly valuations and deep knowledge of best practices.
Securitization Trends
CMBS issuance has surpassed last year’s levels, led by SASB and CLO growth.
CLO activity is anticipated to be strong in 2026.
Conduit products face are falling out of favor.
CMBS issuance has surpassed last year’s levels across SASB, CLO, and conduit segments. SASB issuance continues to trend upward, while the conduit market remains relatively flat despite exceeding 2024 volumes. The most significant growth is in the CLO market, driven largely by recent rate movements. While established issuers continue to show interest in CLOs, we are seeing first-time issuers taking their warehouse lines or transitional balance sheets and putting them into CLOs, which is also boosting the market. An influx of multifamily properties and potential interest rate declines, which are reducing the cost of interest rate caps, are expected to sustain CLO momentum into 2026. A key question for 2026 is the future of the conduit product, historically the cornerstone of the CMBS market. Concerns include the number of active players and the number of loans that can be originated into pools. The shift away from conduits may lead to investors chasing CLOs or continued growth in SASB and balance sheet lending.
Servicing, Advisory and Asset Management Trends
SitusAMC expects strong transaction activity in 2026, fueled by an influx of market participants and the resurgence of debt funds.
Credit committees and B-piece buyers continue to scrutinize deals for all asset types.
Borrowers’ use of AI for lease and financial data processing introduces quality control concerns, underscoring the need for enhanced diligence.
SitusAMC expects relatively robust deal flow in 2026, given the increase in market players and a resurgence of debt funds observed in 2025. Some shops that were quiet in 2025, including those that experienced turmoil from reorganizations and disruptions with originators, are eager to re-enter the market. This should push deal activity higher, and make the market more competitive in proceeds and pricing. However, heightened competition may push loan structures and proceeds toward more aggressive levels, presenting challenges for credit committees and B-piece buyers, which continue to apply rigorous scrutiny across all asset classes. Rising multifamily delinquency rates are prompting deeper due diligence and more granular analysis. Growing use of AI-driven lease and financial data processing by borrowers is sparking concern. Recent errors in AI-generated rent roll outputs are underscoring the need for enhanced quality control as these technologies become more prevalent.
Special Servicing Trends
Looming maturities in 2026 and 2027 are expected to drive increased activity.
Residential conversions are emerging as a potential recovery strategy.
SitusAMC was named as a special servicer on about $35 billion in 2025, and we expect an increase in activity in 2026. The majority of our UPB is in SASB, which saw a decline in activity in late 2025. CLO activity also slowed at the end of the year, but surveillance reports suggest a resurgence in 2026 and 2027. CBD office properties continue to comprise a large segment of special servicing. Additionally, an increasing number of 2015–2016 vintage loans are entering special servicing as their 10-year maturities approach. Maturities in 2026 and 2027, along with resolving underwater deals, are top priorities for clients. Master servicers have begun halting P&I advances, hurting bondholders, and are also suspending property protection advances, which limits funding for tenant improvements and may accelerate liquidations. Residential conversions—currently concentrated in New York—are starting to influence valuations, helping maximize recoveries for clients and providing greater comfort for master servicers in this space.
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