Investor interest and user demand for commercial real estate have picked up nationwide, but higher transaction volume has yet to follow, according to Coldwell Banker Commercial’s 2026 Outlook Report. Persistent barriers — including elevated interest rates, tariffs, and construction costs — continue to slow deal-making, even as buyer activity increases across many markets.
Sellers, particularly those with little or no debt, remain firm on pricing. Many expect future rent growth and see little reason to discount, given strong demand from quality tenants willing to pay top dollar.
In contrast, owner-users seeking space for expansion are often paying premiums or entering competitive bidding situations to secure properties.
Small Spaces Surge as Inventory Stays Tight
Markets with strong population growth and modest wage gains are seeing significant price increases for smaller office, retail, and industrial properties. Limited inventory has allowed owners to hold pricing steady and offer minimal concessions.
Land sales are also active, driven by developers banking sites for future residential projects. This competition has intensified with the rise of data center developers and large logistics users, both of whom require specialized zoning, infrastructure, and power access.
Economic Signals Are Mixed
Unemployment rose slightly to 4.4% in November 2025 — the highest level in nearly four years — according to federal data. While consumer spending remains resilient, consumer confidence has declined, likely influenced by high personal debt levels and ongoing inflation pressures.
Despite these headwinds, U.S. commercial real estate transaction volume reached $385.7 billion through October 2025, a 13% increase year over year. Development sites, office, retail, and senior housing performed best, while multifamily and industrial assets lagged.
Cap Rates Reflect Shifting Risk
Cap rates remain lowest for multifamily properties at 5.6%, followed by industrial at 6.4%. Office assets carry the highest average cap rates at 7.5%, indicating ongoing uncertainty in that sector.
Broker sentiment suggests cap rates will largely hold steady in the near term. Coastal markets expect some upward pressure, while smaller markets with strong job growth may see cap rates compress.
Buyer and Seller Behavior Is Diverging by Market
Transaction activity is up across many regions, but deal volume continues to trail as buyers and sellers remain cautious. Markets supported by population inflows and business growth — particularly along the East Coast, South, Great Lakes, and Mountain regions — are emerging as leaders heading into 2026.
By contrast, markets oversupplied with large office and industrial buildings are shifting leverage toward buyers. Demand for large-format spaces has declined as industrial users favor smaller warehouses and corporations decentralize into regional offices.
In these oversupplied markets, sellers are cutting prices, and landlords are offering rent reductions and incentives to retain tenants.
Financing Conditions Slowly Improve
Bank lending is easing for owner-users, well-leased properties, and high-quality retail centers. However, financing remains tight for new construction, restaurants, and small businesses.
Seller financing has become increasingly common, helping transactions close amid higher interest rates. Longtime owners seeking liquidity are particularly open to these structures.
In larger markets, private equity firms, developers, and ultra-high-net-worth individuals continue to play an active role in financing acquisitions.
Sales Trends Point to Selective Optimism
Buyer demand remains deep, fueled by 1031 exchanges, owner-users, private investors, and homebuilders. Recent tax law changes restoring bonus depreciation have accelerated purchasing decisions for both real estate and equipment.
Vacancies are declining, rents have largely bottomed — especially in office real estate — and cap rates have compressed modestly across retail, multifamily, and office assets. Industrial cap rates, however, have risen following reduced demand for large spaces.
Refinancing Looms as a Potential Trigger
Refinancing remains challenging for properties with high vacancy rates. Nearly $1 trillion in commercial real estate loans matured in 2025, yet distressed sales have remained limited as lenders work with borrowers.
Still, refinancing could spark increased sales activity. Many owners now face renewal rates 150–200 basis points higher than their existing loans, often requiring additional equity.
Leasing Favors Small, Flexible Spaces
Small-format spaces are in high demand across retail, office, and industrial sectors, with landlords offering few concessions due to limited availability. Medical users, professional services firms, satellite offices, and coffee operators are among the most active tenants.
Large tenants are more selective, favoring Class A properties with premium amenities. Suburban locations continue to outperform downtown districts in many major metros.
Office Market Stabilizes Unevenly
Demand is strongest for offices under 10,000 square feet, while large occupiers continue to downsize. Companies are increasingly relocating from central business districts to suburban hubs.
Class A buildings are drawing interest, but oversupply persists. Price cuts of 20–30% are common, along with aggressive concessions. Conversions to multifamily and medical use are playing a critical role in reducing vacancy, particularly in well-located properties.
Cautious Optimism for 2026
Heading into 2026, market fundamentals appear stronger, with much of the uncertainty around rates, tariffs, construction costs, and post-pandemic adjustments already priced in.
While buyers and sellers still lack a clear catalyst to push deals forward, sentiment is improving. Expectations of lower interest rates, better lending conditions, and incremental economic gains are supporting optimism that transaction volume could rebound in the year ahead.
