2026 Outlook: Entering a More Disciplined Real Estate Cycle

Important Disclosure The views and opinions expressed in this article are those of the author and reflect his personal perspective as of the date of publication, informed by professional experience, ongoing market observations, and qualitative assessments developed over time. This commentary is not intended to be, and should not be construed as, investment advice, a forecast, or a prediction of future performance. The observations shared do not rely on or present specific statistical analyses. Actual market conditions, outcomes, and performance may differ materially. Past experience is not indicative of future results.

As we enter 2026, the commercial real estate market appears to have transitioned into a more measured and disciplined new cycle. The last several years (since the GFC) was a period of consistently declining interest rates – dramatically ending in 2022/2023 with the rapid rise and normalization of rates . This resulted in a sudden and painful shock to the real estate market, the effects of which continue to this day. It took a bit of time for reality to set in, however, the market has now clearly reset with appropriately lower valuations, and we are now at the beginning of new real estate cycle – one that feels to me more grounded in fundamentals rather than riding the wave of declining interest rates.

From a personal experience standpoint, this has been the fourth downcycle of my career, and certainly both unique and challenging in its own way. The very historic upswing of investment, fundraising, and transactions 2021-22, was then dramatically disrupted by the rapid and sudden rise in interest rates in 2023. While there certainly are the key quantitative metrics that provide requisite milestones of if we have recognized reality (clarity of valuations and traction on new transactions, for example), my personal gauge is my own feel for where the market is in regard to the four stages of grief (denial, anger, depression, and acceptance). I believe by and large that we have mostly achieved the acceptance stage – so now forward into the new cycle.

"This “K-shaped” dynamic, as I see it, has meaningful implications for real estate demand, especially across housing, retail, and service-oriented property types."

From a macroeconomic standpoint, my read of the U.S. economy suggests continued resilience. Economic activity seems to have remained positive, supported by consumer spending and generally healthy corporate balance sheets. (Please note – the progression and impacts of the Iran war are material caveats). At the same time, job growth appears to have moderated relative to prior years, and the benefits of economic expansion have not been evenly distributed. Higher-income households, in particular, seem to remain on relatively solid footing, while affordability pressures persist across other segments of the population. This “K-shaped” dynamic, as I see it, has meaningful implications for real estate demand, especially across housing, retail, and service-oriented property types.

Interest rates remain a dominant influence on real estate markets. Short-term rates have eased from prior highs, and longer-term benchmark rates (10-year UST) have remained relatively stable in the low to mid-fours. For real estate investors like us, these longer-term rates tend to matter more than short-term rates. They underpin valuation assumptions, capital structures, and underwriting discipline. Based on my conversations with lenders, investors, and deal counterparties, expectations around rates and pricing appear more grounded today than in prior periods which again relied on low and lower rates.

From a valuation perspective, in my opinion it appears that the most acute phase of price correction is largely behind us. Broadly speaking and based on the deals we review and the markets we track, real estate values seem to have reached a low point in early 2024, with modest and uneven recovery since then across property types and geographies.

While there is a broad and often dramatic range of price declines depending on property type and asset specifics, many assets we evaluate appear to be trading below, and often meaningfully below, replacement cost or what it would likely cost to develop comparable assets today. Construction costs generally remain materially higher than pre-Covid and are still up since the last start of the construction cycle (2021), reinforcing the relative appeal of existing, well-located properties.

This backdrop has led us at Realberry to view the current environment as potentially one of the more compelling entry points in recent years for certain strategies and asset types. That said, I believe it is important to distinguish between opportunity and absolute value. On a relative basis, real estate does not necessarily appear “cheap” when measured against certain historical benchmarks. Instead, the opportunity I see today lies in clearer pricing, improved income visibility, and the ability to focus on assets where prospective returns are supported by operations and fundamentals rather than shifts in interest rates or valuation multiples.

"I see the current environment placing greater emphasis on asset quality, market selection, operational execution, and patience."

Looking ahead, I would expect returns in this cycle to be driven primarily by net operating income growth and durable cash flow. The prior cycle rewarded leverage, rapid appreciation, and declining interest rates. In contrast, I see the current environment placing greater emphasis on asset quality, market selection, operational execution, and patience. While this may result in a less dramatic return profile, it may also support more durable outcomes over time.

Capital markets seem to reflect this transition. Based on my conversations with our banking partners, debt capital has largely returned for certain asset classes and sponsors, with lenders re-engaging and underwriting standards becoming more consistent. Equity capital remains available, but selective. Many investors continue to navigate liquidity constraints stemming from limited distributions from existing funds, often influenced by delayed valuation recognition. As pricing clarity improves and transaction activity continues to normalize, capital flows into real estate may strengthen gradually, though likely without the urgency seen in earlier cycles.

In general, transaction volumes remain below prior peaks but are showing some signs of stabilization. In my experience, buyers and sellers are increasingly finding common ground as market values become more clearly established. This process of price discovery, while gradual, is an important step toward a healthier and more functional market.

Within this framework, asset and market selection have taken on heightened importance. The dispersion of outcomes between property types, geographies, and even individual assets appears wider to us than in past cycles. Multifamily and industrial properties continue, in my view, to represent the deepest and most liquid segments of the institutional market. Within residential, for-rent housing formats, including build-to-rent, are attracting increased attention, which is due to demographic trends, affordability considerations, evolving lifestyle preferences, and other factors.¹

Retail, after being out of favor for several years, seems to have re-emerged as a sector of strong interest following years of limited new supply and steady consumer demand, as well as retailers learning they clearly need physical stores – as well as online presence. In markets where fundamentals support it, well-located retail properties appear capable of attracting capital, inclusive of selective development.²

Office and hospitality remain more complex in our view. While each may have reached a valuation floor, recovery may be uneven. In office, a subset of high-quality, well-located assets appears positioned to perform, while the majority of assets still seem to face structural challenges in demand and functionality.³ To me, hospitality presents very interesting, but selective opportunities, particularly in the luxury and lifestyle segments and in assets acquired below replacement cost, though managing operating expenses remains a key consideration.

Alternative property types, including medical office, student housing, manufactured housing, industrial outdoor storage, and data centers, continue to exhibit demand characteristics that we may find attractive, albeit with varying risk profiles and capital requirements.

"In our view, the path forward is unlikely to be defined by rapid appreciation or broad-based tailwinds, but rather by disciplined investment, thoughtful underwriting, and a focus on assets supported by enduring demand."

In summary, I would characterize the 2026 outlook for real estate as cautiously constructive. The market has absorbed a meaningful reset, pricing has adjusted, and capital markets appear to be stabilizing in certain segments. In our view, the path forward is unlikely to be defined by rapid appreciation, and most certainly not by continued declining interest rates, but rather by disciplined investment strategy, thoughtful underwriting, operating execution, and a focus on assets supported by secular tailwinds.

At Realberry, we believe this kind of environment rewards experience, selectivity, and a long-term perspective. While uncertainty remains, both economic and geopolitical, the foundations for the next phase of the real estate cycle appear to be taking shape. For those willing to engage thoughtfully, the coming years may offer opportunities defined not by excess, but by fundamentals.