Market Matters

June 2026  

QUICK BITES  

• Our refreshed AI Impact Barometer shows capital flows into AI accelerating sharply since our February update. Venture funding for AI and machine learning hit $269 billion in the first quarter alone, already exceeding the full-year total recorded in 2025. Meanwhile, the five largest hyperscalers' combined capex ran near double its year-earlier pace. The productivity payoff is starting to show: labor output per hour has accelerated for four straight quarters to 2.8%, and corporate profits rose 9.7% even as retail sales gained just 3.3%. The CRE signal is sharpening too, with availability compressing across automation-ready distribution space, Class A office in tech hubs, and data centers. Explore the Barometer.
  
  
• The economy looks to be reaccelerating, clearly evident in the latest labor market reports. Payrolls rose 172,000 in May, more than double the roughly 80,000 consensus, and the unemployment rate held at 4.3%. Job gains were concentrated in healthcare, hospitality, and local government, but the revisions are worth noting; March and April were marked up by a combined 93,000, breaking three straight months of downward revisions.
  
  
• Forward demand is turning across both goods and services. The ISM Manufacturing New Orders Index jumped to 56.8 in May, up 2.7 points and now expanding for a fifth straight month, while the headline Manufacturing PMI reached 54.0, its strongest since May 2022. Services new orders firmed in parallel, to 57.3. New orders are the component that moves first, which makes the breadth of the pickup notable. The same report came with a caveat: the ISM Prices Index held at 82.1, deep in expansion territory, so the reacceleration comes with upside inflation risk.
  
  
• Oil remains elevated from pre-war levels, but is headed in the right direction. With the U.S. and Iran moving toward a signed framework, Brent has fallen below $75, its lowest since early March, down 13% over the past two weeks and about 39% below the wartime peak. The national average gas price has slipped back under $4 per gallon. Expect another month or two of elevated headline inflation as higher energy costs feed through with a lag, but the impulse has clearly reversed, and the IEA is now warning about global demand destruction and a renewed surplus rather than the supply shock it flagged in the spring.
  


• The downshift in borrowing costs has been more meaningful than the headline rate move suggests. The 10-year has come off its mid-May peak of 4.61% to roughly 4.37%, and the larger contributor sits in spreads: BBB option-adjusted spreads have round-tripped the entire conflict to 95 bps, the tightest since the late 1990s. Stack the two together and all-in debt costs have improved materially, even with the Fed on hold and cuts off the table. The risk-free rate holding up says the market still reads inflation as more than an energy story; the collapse in spreads says it sees little risk of distress; and for borrowers the net result is cheaper financing than the move in Treasuries alone would imply.
  

KEY THEMES

• Rate hikes are back on the table. The FOMC held rates steady for the fourth straight meeting during Kevin Warsh’s debut as Fed Chair, but the intrigue was in the projections. The median contributor to the Fed’s Summary of Economic Projections now sees the funds rate ending 2026 at 3.8%, a quarter point above the current range, against 3.4% three months ago, with half of the 18 contributors penciling in a hike this year and six members projecting two. Policymakers lifted year-end PCE inflation to 3.6% from 2.7% and trimmed growth to 2.2%. It is worth noting that the deadline for Fed officials to submit these forecasts was Friday June 12, one day before Iranian officials signaled that they were close to signing a memorandum of understanding with the U.S. Since then, oil prices have fallen by 10%. Nonetheless, markets have repriced future rates to match the Fed’s SEP: the odds of at least one hike by year-end rose from near 60% before the meeting to above 80% after, the probability of two hikes doubled from 15% to 30%, and three-hikes from 2% to 9%.
  
  
• The first quarter brought real signs of improving consumer health. According to the latest New York Fed data, flows into early (30+ day) delinquency fell from 5.6% to 5% during Q1 2026, while flows into serious (90+ day) delinquency dropped from 3.3% to 2.8%, and the share of balances that were current ticked up to 95%. While higher gas prices likely reversed some of this momentum in the second quarter, more recent data from our multifamily platform also points in a positive direction. Application volume among the ~150,000 units we manage was up about 15% Y/Y as of May, pointing to improving consumer health; households are unlikely to be ramping up lease signings if they expected their finances to worsen. The University of Michigan Consumer Sentiment Index also turned up in June, rising 9%, the first gain in four months. Overall, business investment-friendly tax cuts, a buoyant stock market, and the AI infrastructure buildout have been outweighing the recent economic drag from higher energy costs.  With retail gas prices now retreating, the tailwinds behind consumer sentiment favor more improvement from here.  


• The bid for CRE has stayed firm through the rate turmoil. On the lending side, originations continue apace, though activity remains skewed toward refinancings rather than new acquisitions. That’s unsurprising given drum-tight spreads, which continue to support not only attractive pricing but also more flexible terms for borrowers. On the equity side, reliable data is hard to come by so soon after a disruption, but anecdotally buyers have largely held firm on pricing through the base rate increases. Some would-be buyers did go pencils down in the wake of the 10-year surpassing 4.6%, but with rates having fallen since, many have re-engaged. Pipelines of deals coming to market continue to balloon, which should result in a busy second half of the year.

DIVING DEEPER

Performance Data from Recent Office Investments Looks Promising

More than four years have passed since office values began a peak-to-trough decline of over 25%, a correction that lasted from early 2022 through mid-2024. In the aggregate, office pricing has since stabilized and even increased modestly. That broad trend, however, masks significant differences across markets and individual buildings. High-quality, well-located assets have generally performed much better than older commodity office properties, and recovery has varied considerably by market. Even so, according to both NCREIF and MSCI/RCA the sector-wide correction ended more than a year ago.

This all means that enough historical data is finally emerging to look back and assess the performance of office investments made in the wake of the recent pricing correction. So far, the results are encouraging.

NCREIF’s database of institutionally owned properties includes 52 office assets (with an aggregate market value of $3.5 billion) whose owners acquired these buildings one year or more after the recent office pricing correction began.
Most of these properties have been held by their current owners for less than two years. There is likely little to glean from analyzing reported appreciation returns on these assets. Those figures are mostly based on internal appraisals conducted over a particularly short holding period, during a time of pricing discovery and limited sales volume for the office sector overall.

In contrast, income returns likely provide greater visibility into how these properties’ early returns measure up, as income return figures are mainly a function of each asset’s recent acquisition price and its NOI performance since that acquisition occurred.

Source: NCREIF, Cushman & Wakefield Research

Over the last several quarters, annualized income returns of office properties acquired after 2022 have maintained a 100-120 basis point lead over income returns of office properties acquired before the last pricing correction began. They have also outperformed income returns of recently acquired apartment and industrial properties by 200-300 basis points. These figures represent differences in unlevered income returns but in practice, the use of leverage likely widens office’s outperformance margin even further.

In addition to supporting higher income returns from the outset, investors’ lower cost bases on new office acquisitions are also freeing up more funds needed to make renovations and upgrades, as well as offer competitive concessions packages, both of which are helping these properties lease up at a steady pace.

According to data from CoStar, the aggregate availability rate of office properties last sold after 2022 has fallen by six percentage points, from 28% in mid-2024 to 22% today. This represents significant outperformance compared to office buildings last sold before 2022 (in other words, properties whose owners haven’t had the benefit of beginning their holding period at a newly reset, lower cost basis). The aggregate availability rate for the latter group of properties has also declined since mid-2024, but only by about 70 basis points.

 Source: CoStar, Cushman & Wakefield Research
Data excludes properties sold to owner users or converted to other uses.

These dynamics echo the healthy lease-up performance of office investments that were made in the immediate aftermath of the Great Financial Crisis, which triggered a more than 35% peak-to-trough decline in office sales pricing.

Coming out of the 2008-09 recession, overall office absorption was relatively weak for several years. However, thanks mostly to their newly lowered cost basis, office properties acquired between 2010 and 2012 recorded rapid declines in availability rates during the first three years of their holding periods. In fact, their availability rates tightened significantly faster than those of investments made from 2015 to 2017, when absorption had strengthened, but property prices had already rebounded and competition from speculative construction was heating back up.

Source: CoStar, Cushman & Wakefield Research
Data excludes properties sold to owner users or converted to other uses.

In 2026, lower cost bases are producing higher office income returns from day one and giving owners the capital flexibility to compete aggressively for tenants. The lease-up numbers bear that out. But is the cost of renovations needed to make these buildings competitive eroding their return premiums? So far, the answer appears to be no.

According to NCREIF, capex spending on office properties acquired after 2022 has totaled about 0.9% of these properties’ estimated market value, about 30 basis points higher than capex ratios for office properties last acquired before 2022. For apartment and industrial properties acquired after 2022, these same capex ratios are between 0.3%-0.4%. In other words, new office investments are incurring higher capex spending, but not enough to offset the 200-300 basis point income return premiums they are generating over more in-demand property types. Meanwhile, benchmark indices including CoStar’s Value Weighted Repeat Sales Index, and Real Capital Analytics/MSCI’s Commercial Property Price Index both show office leading the four major property types in year-over-year sales price appreciation.

For institutional investors who have kept new office allocations near zero since 2022, the early performance of post-correction vintages is worth taking seriously as a signal that new investments into office properties with credible sponsorship are worth pursuing. Investment committees should take these signals as proof positive that selective office deployment is warranted as part of a balanced portfolio moving forward.

May 2026  

QUICK BITES  

• Inflation is reaccelerating, and likely to move higher this summer. Core and headline CPI rose by 2.7% and 3.8% year-over-year (YOY), respectively, in April, with the latter reaching its highest rate in three years. The producer and ISM price indices have risen even more rapidly. With relatively soft CPI readings from May–July 2025 set to drop out of the YOY measurement period, headline inflation is likely to exceed 4% in the coming months.
  
  
• The U.S. economy has remained resilient in the first few months of the energy price shock. Continued unemployment claims fell by 3.6% from late February to early May, with no meaningful increase in initial claims since the Iran war began. Meanwhile, tax cuts and a resurgent stock market are supporting affluent household purchasing power, helping drive restaurant reservations up 12.5% YOY in late April and early May, according to OpenTable. The longer retail gas prices remain above $4 per gallon, the more budget pressures hitting low- and middle-income households risk denting broader economic momentum. Thus far, however, the so-called K-shaped recovery remains intact, alongside the AI infrastructure buildout, and the labor market remains stable.
  
  
• Markets are now pricing almost even odds that the Fed will either hold rates steady or hike in 2026. In stark contrast to expectations at the start of the year, Fed funds futures markets have become unsettled by inflation prospects and are now pricing a 0% chance of any rate cuts by the end of 2026. At the start of this week, markets priced a 44% probability that the Fed holds rates steady through year-end, alongside a 41% chance of a 25 basis points (bps) hike and a 16% probability that rate increases total at least 50 bps this year.
  
  
• High frequency measures of CRE lending activity still show no signs of a meaningful pullback.  CRE lending spreads have held near multi-decade lows despite recent Treasury rate increases. Bank CRE debt outstanding grew by $32 billion from the start of March through mid-May, a significant improvement relative to the less than $1 billion increase recorded during the same period in 2025. Following healthy tallies in recent weeks, global CMBS issuance has totaled $96 billion since the start of 2026, the strongest year-to-date tally recorded through mid-May since 2021. While the uptick in Treasury yields over the last three weeks has reportedly slowed some interest in conduit refinancing deals at the margin, SASB deals remain very active.
  

KEY THEMES

• For many borrowers, the recent uptick in Treasury yields is tipping the scales in favor of floating rate debt. Since the start of the Iran war, 5- and 10-year Treasury yields have each risen by 50-70 bps, to 4.2% and 4.5%, respectively. But with the Fed holding its key overnight policy rate steady, SOFR has remained in the 3.5% to 3.75% range while CRE lending spreads remain tight. This puts all-in coupon rates on new floating rate debt roughly 20-45 bps lower than those of fixed rate deals, though asset quality, location and sponsor will create divergences in pricing. Not surprisingly, according to MSCI/Real Capital Analytics, year-to-date in 2026, floating rate deals have comprised the highest share of new originations since 2022 across each of the four major property types.
  
  
• While markets remain rattled by rising inflation prospects, two or more Fed rate hikes are still very unlikely in 2026. Voting members of the FOMC understand that raising interest rates won’t directly address upward pressure on prices from the current energy supply shock. Most will also likely want to remain patient and wait several months to observe whether rising energy prices abruptly reverse (given the volatile nature of energy prices), or exert any delayed, negative pressure on the labor market before proceeding with rate hikes. Even in the unlikely event that multiple rate hikes do occur over the next several months, those increases come with real risks that the Fed overshoots and must then reverse course shortly thereafter. Floating-rate borrowers would be positioned to benefit from any such reversal.


• Elevated Treasuries are pressuring CRE volumes and values, though less so than the disruption following Liberation Day. The Iran conflict has driven Treasury yields sharply higher, much like Liberation Day did, when the 10-Year Treasury yield rose by roughly 40-50 bps last spring. The credit backdrop, though, is far healthier than at this point last year, offering some cushion against rising base rates. New origination volume and lending spreads are materially stronger than they were last spring, and the market’s growing consensus around higher-for-longer has seen greater adoption as the ‘base case’ than it had a year ago, leaving capital markets more stable as a result. An extended stretch of Treasuries around 4.5% or higher would weigh on CRE inflows and pressure pricing, but the question is how long the market holds at these levels. On the timing front, the energy market offers a read: WTI Crude prices have fallen roughly 15% since May 19, to about $93 from $109, on signs of an off-ramp to the conflict. If that holds, rates should follow oil lower, settling back into the 4.25-4.5% range, leaving inflows softer at the margin, but well short of the pullback that followed Liberation Day.


• A resilient U.S. economy and thinning supply pipeline have both helped NOI growth improve recently, in all major property sectors aside from multifamily. Whipsawing treasury yields may be dominating industry headlines, but it’s important not to lose sight of the overall trajectory of property fundamentals. NAREIT’s recent release of its Q1 2026 REIT industry tracker provides a useful window into NOI trends, and the latest figures are encouraging. Industrial REITs led the pack with 5.6% YOY growth in same-store NOI, marking the third consecutive quarter of acceleration. Retail REIT NOI growth rose to 3.8%, more than double the pre-pandemic three-year average, and office REIT NOI growth swung positive for the first time in nine quarters, recording 1.1% YOY growth.

DIVING DEEPER

Tipping the Balance Toward Sales Activity

The capital markets recovery has been a debt story, and especially so in the multifamily capital markets. Refinancing activity has driven the YOY gains in origination volume, running well ahead of investment sales volume. Q1 made the pattern explicit: apartment refis posted the largest YOY dollar-volume increase across all property type/transaction-type combinations, while apartment property sales posted a YOY decline. The reason for the asymmetry is straightforward; debt has repriced while equity repricing has moved slower. The 10-year has moved up 350 bps since the beginning of 2021, and the conventional commercial mortgage coupon has largely tracked that increase. Apartment cap rates, on the other hand, have moved ~100 bps over the same window. The sell/hold decision has, generally, not favored selling, because a refi preserves fund marks, waterfall outcomes, and the option value of waiting for a rate cutting cycle. But forthcoming maturities and the growing consensus around a higher-for-longer view erode the calculus from different directions.

Source: MSCI Real Capital Analytics, Cushman & Wakefield Research

 
The maturity side is a function of 2021 vintage deals originated when multifamily property sales surged to all-time highs. Per MSCI Real Capital Analytics (RCA), 16% of apartment loan originations in 2021 carried terms of three years or less, which is four times the 2015-2020 average and the highest short-duration share on record. Variable rate paper was more concentrated still: 46% of variable-rate apartment originations in 2021 came in under three years, against a 2015-2020 average near 11%. Most of that paper carried a three-year initial term and two one-year extension options. By year-end 2026, the runway on those initial loans runs out. Per RCA, $86 billion of 2021-originated apartment paper carries a scheduled 2026 maturity, the largest single vintage-year concentration on the maturity calendar, with another $42 billion of that vintage already operating under exercised extensions.

Source: MSCI Real Capital Analytics, Cushman & Wakefield Research

The refi wave has worked through part of the backlog. Per RCA, 76% of 2025 multifamily originations were refinancings, against 70% across all asset classes, both of which were all-time highs. The 2021 cohort has the worst combination of features for an owner deciding whether to hold. The aggressive underwriting on these deals ultimately did not hold. And the extension options that allowed those borrowers to defer the question are now exhausted, along with the lenders and LPs. The owners with the biggest need to buy more time are the ones with the least of it.

For the rest of the market, the option to defer remains intact. The debt markets remain liquid in a way that continues to support that choice. With the 10-year at 4.6%, conventional multifamily debt costs sit near 6.2%, roughly 30 bps above where they traded six months ago. Debt liquidity has kept the refi option available, but the option's value depends on what owners assume about rates. A refi into a 6% coupon is a defensible decision if it bridges to a rate cut that arrives in 12 to 18 months. As higher-for-longer permeates investment-committee thinking, that defense becomes more challenging. Each of those arguments to hold rested on an eventual rate retracement that's fading from consensus. Sponsors that have already absorbed multiple rounds of recap have less optionality on the next one, and LPs that funded prior bridge solutions are less willing to fund another without a clearer path to exit.

Buyer demand has not been the constraint on transaction activity. The rebound in portfolio transactions and REIT take-privates this year demonstrate an appetite for apartment deployment at scale. Willing sellers, on the other hand, have been fewer and far between. Forthcoming maturity dynamics remove the option to defer for the market-peak (2021-2022) cohort, $113 billion of which carries a scheduled 2026 maturity with another $95 billion already operating in extension status. Fading hopes for an orderly decline in benchmark treasury rates compress the case for deferral for the rest of the market. The pace at which sales catch up to refinancings depends on how broadly a higher-for-longer interest rate outlook settles into base cases, but with LPs and lenders pushing for fresh capital, sales volume is more likely to follow refi volume higher than at any point since the rate hike cycle started.

April 2026  

QUICK BITES  

• Inflation Expectations Have Run Meaningfully Higher This Year: The bond market's most direct read on expected inflation, the 5-year TIPS, breakeven opened 2026 at 2.28%, peaked at 2.66% in mid-March, and sits at 2.57% as of late April. March CPI came in at 3.3%, the highest reading since May 2024, which reinforced the inflationary signal bond markets had been sending since the Iran conflict began. For real estate investors, the implication is clear: base rates are not coming down meaningfully, and financing costs will remain anchored through the near term.
  
  
• The Rate Cut Timeline Has Effectively Closed for 2026: At the start of the year, Fed funds futures were pricing three cuts; by late March, the market briefly assigned a higher probability to a hike than to any cut. Today, per CME, the no-cut scenario commands roughly 70% of market probability, with a single cut drawing approximately 25%. Even if the Fed does cut, it’s worth acknowledging Chair Powell’s comments “From last September through December, we lowered our policy rate three quarters of a percentage point, bringing it within a range of plausible estimates of neutral.” Said another way, even if we do get rate cuts this year, we’re quickly approaching what some FOMC voting members believe is the neutral rate of interest; expecting significant cuts from there would be imprudent.
  
  
• So Far, Interest Rate Volatility Has Only Normalized, Not Spiked: The debt market reaction to the first two months of the latest conflict in the Persian Gulf has been relatively measured. The 10-year Treasury rate is up 40 basis points from its late February low of 4%. This marks a pickup in rate volatility from the exceptionally low levels seen in late 2025. However, over the last five to ten years, 40 basis point swings in the span of two months were more the norm than the exception. This all points to heightened risk of further Treasury rate increases in the months ahead if markets begin to price longer energy supply chains disruptions than currently anticipated. 
  
  
• Q1 Transaction Volume Continued Its Recovery, With Notable Divergence by Property Type: Office led all major property types with Q1 volume up 34% year-over-year, per MSCI Real Capital Analytics, though it remains 36% below the 2017-2019 pre-pandemic average on a trailing four-quarter basis. Industrial posted Q1 volume up 23% and now runs 27% above its pre-pandemic baseline over the past year, the only major sector to have durably surpassed pre-pandemic activity levels. Apartment volume was largely flat in Q1, reflecting continued supply pressure in key markets, while hotel posted the largest single-quarter gain of 64%. As with all fresh data, volumes will likely be revised upward as MSCI gathers additional transaction information.
  

KEY THEMES

• Rising inflation expectations have pushed the rate cut outlook from "when" to "if," and longer-duration Treasury yields are reflecting that shift. The recent repricing of the inflation outlook driven by the Iran conflict’s corresponding energy supply shock arrived amid an already-sticky inflation backdrop. The Fed held at 3.50–3.75% in March, and the median dot plot from the March FOMC showed just one remaining 25-basis-point reduction as the central case. The longer end of the curve has moved accordingly, with 5- and 10-Year Treasuries both up about 40 bps from pre-war levels.
  
  
• Corporate bond spreads have treated the Iran conflict as largely a non-event, and the retracement in spreads underscores that healthy financial conditions remain broadly intact. The BBB-rated corporate bond spreads fell to 93 basis points at their February low, widened to 116 basis points at the height of the conflict, and have since retraced to approximately 101 basis points, reflective of a still bullish lending environment. These movements are consistent with how credit has behaved through many prior geopolitical episodes: initial spread widening on uncertainty, followed by relatively rapid compression once tail risk is contained. For real estate investors, the message is that the cost of capital for well-capitalized borrowers has not structurally deteriorated. It is also notable that lenders have remained focused on their goal of ramping up originations in 2026, even amid extraordinary geopolitical volatility.


• Real estate debt markets moved in sync with broader credit markets. CMBS AAA spreads over swaps widened approximately 17 basis points from the February low to the late-March peak before retracing 5 basis points from that high. Conventional secured debt spreads held essentially flat through the conflict period, with borrowers absorbing the rate move through the base rate itself rather than any spread widening. Robust CMBS issuance further reflects the structural appetite for CRE debt despite the geopolitical and macroeconomic uncertainty. Conditions are not back to pre-conflict lows, but the directional improvement will help buyers and sellers reengage. 


• REIT consolidation has picked up in 2026, with announced deal volume already more than doubling the full-year 2025 total and the pipeline still growing. Across closed transactions and announced deals pending close, public REIT M&A activity in 2026 has topped $26 billion, compared to roughly $11 billion for all of 2025. The driver is not complex; Green Street estimates that most property types outside of industrial are trading 15%-20% below net asset value. That discount is enticing to institutional acquisition teams that need to deploy capital at scale. Our expectation is that total public REIT M&A volume ends the year materially above the current figure, and that the breadth of property types represented in the pipeline continues to expand.

DIVING DEEPER

Prime Office Availability is Falling Fast in the Largest U.S. Tech Hubs

The surge in office vacancy across premier U.S. tech markets from 2020 to 2024 was widely covered, with phrases like "doom loop" and "commercial real estate apocalypse" dominating headlines. The reversal of fortunes many of the nation’s priciest office markets were experiencing seemed to fit perfectly into the archetypal fall from grace narrative reporters clamor for in today’s media environment.

Fast forward to 2026 and something else is falling in many of the nation’s largest tech hubs: class A office availability. In the top 10 counties for tech employment concentration, total class A office space listed available for lease has fallen by 9.5 million SF or 11% over the past four quarters.

Source: CoStar, Cushman & Wakefield Research

 
Given the magnitude of the 2020-2024 run up, class A office availability in these locations is nearly double pre-pandemic levels. But that shouldn’t detract from the pace of availability declines over the past four quarters, which was the fastest recorded in more than 20 years.

The chart below depicts the cumulative reduction in class A office space available for lease since the end 2025 Q1, in each of the top 10 U.S. counties for tech employment concentration.

Source: CoStar, Cushman & Wakefield Research

Santa Clara County, in the heart of Silicon Valley, leads the way, with total class A office space listed as available for lease falling by 23%. This is not surprising given that Santa Clara is home to headquarters of AI hardware giants like NVIDIA, AMD, and Intel, as well as big three AI hyperscaler Google. If class A office availability in Santa Clara County continues to fall at its current pace, in less than 2.5 years, it will be half of pre-pandemic levels.

Nearby in San Francisco County, class A availability is also falling rapidly amid a flurry of leasing from established AI software providers such as Anthropic and other startups in that space.

A more under-the-radar recovery is taking shape in Northern Virginia. The Washington D.C. metro is home to more workers in computer and mathematical occupations (234,000) than any major U.S. market outside of the San Francisco Bay Area and New York City. Its top counties for tech employment concentration, Arlington and Fairfax, recorded 8% and 15% declines in total available class A space over the past four quarters, respectively. Several high-tech defense contractors have been growing their overall square footage. Meanwhile, investors including Toll Brothers, Tri Pointe Homes, and JBG Smith Properties have acquired occupancy challenged office properties for residential conversion, taking several hundred thousand square feet of competitive office space off the market.

Lastly, while no New York counties rank in the top 10 of the U.S. for tech employment concentration, the New York metro area leads the nation in total workers in Computer and Mathematical occupations (327,000+). Not to mention, much of the AI infrastructure buildout is being financed by New York-based investment giants.

When Manhattan’s major submarket clusters are added to the mix, we see Midtown South leads the pack with the fastest declines in availability, and Midtown follows close behind.

Source: CoStar, Cushman & Wakefield Research

As each quarter of new data comes in, it’s becoming clear that in an increasing number of tech-driven markets, class A office properties aren’t just surviving the AI boom, they are emerging as some of the leading beneficiaries.

March 2026  

QUICK BITES  

• Implications for the Iran War: What began on March 1 as a targeted military strike has broadened into a wider regional conflict, with energy infrastructure hit across the Gulf - including Saudi Arabia's largest refinery - and shipping through the Strait of Hormuz significantly disrupted. Brent crude, which opened the year near $60 per barrel, surged to nearly $120 before pulling back to the $90-100 range as markets reassess the likely duration of supply disruptions. At the pump, average U.S. gasoline prices have risen to $3.79 per gallon as of March 17, up from $2.94 just a month earlier. Our baseline assumes the Hormuz disruption proves temporary, with oil averaging around $90 per barrel in the first half of 2026, before trending back toward $70 as flows normalize. The primary downside risk is a sustained closure, which would keep prices above $100, delay rate cuts and tighten financial conditions materially. We’re constantly monitoring the situation, and updating our thoughts in real time here. 
  
  
• CRE Capital Markets Are Holding Their Course, with transaction activity showing no signs of deceleration. Conversations with our capital markets brokers and debt professionals reveal no discernible pullback in deal velocity in recent weeks. In the CMBS market, AAA conduit and agency spreads moved out less than 5 basis points in the immediate aftermath of the conflict, a notably contained reaction given the scale of the geopolitical shock, though AAs and As moved out 10-20 bps. That resilience tracks with history. Geopolitical episodes tend to introduce short-term hesitation rather than cycle interruption, and the underlying drivers of this recovery remain intact: debt markets are liquid, valuations are firming, equity formation is strengthening, and capital continues to pursue assets with clear business plans and durable income streams. 
  
  
• Financial Markets: A Measured Re-Pricing, Not a Fundamental Deterioration: The financial market response has been notable but contained. Equity volatility has increased, though much of the movement in technology has been driven by valuation reassessment as much as macro stress. More consequentially for CRE, credit markets have not signaled distress: corporate bond spreads have widened modestly; 23 bps since the early February low, with most of that increase occurring prior to the Iran conflict. Since the end of February (right before the Iran conflict kicked off), the BBB Corporate Index Option-Adjusted spread was up just 8 basis points, as of March 16th. More importantly, current spreads remain near 25-year lows. Lending markets remain functional and financial conditions broadly stable, pointing to a relatively limited impact on CRE thus far. 
  
  
• Rate Cut Expectations Are Being Pushed Out and Dialed Back: The combination of low unemployment, sticky inflation and energy price pressures has led futures markets to meaningfully revise their Fed easing expectations. According to CME, the most probable outcome for the full year is now just a single 25 bps rate cut at 41% likelihood, while the probability of no cuts at all has risen to 34% from 4% at the end of February as of March 13th. The Fed has signaled patience, and absent a sharper deterioration in employment, it is unlikely to move proactively, particularly with the energy prices now facing upward pressure.
  

KEY THEMES

• U.S. Population Growth Has Downshifted Materially: New Census Bureau data through mid-2025 show that total U.S. population growth slowed to approximately 0.5%, roughly half the 1.0% pace recorded in 2024. The driver is unambiguous: international migration fell to approximately 1.3 million, down from 2.7 million in 2024 - the steepest single-year decline in recent memory. International migration's share of total population growth has moderated to 71%, down from a peak of 88% in 2022, underscoring just how dependent overall U.S. population expansion has become on migration. Some research estimates go further still. Economists at Brookings and the American Enterprise Institute project that on a net basis, after accounting for deportations and voluntary departures, migration flows may have turned negative in 2025 for the first time in at least half a century, with continued negative net migration projected into 2026. The structural implications of this shift are already showing up across labor markets and consumer spending and may ultimately translate to demand fundamentals that underpin commercial real estate.  
  
  
• A New Breakeven and What the Latest Jobs Data Tell Us: The immigration slowdown has a direct and underappreciated consequence for how we read labor market data. Previous editions of Market Matters have addressed this, but the data from the most recent labor reports highlights this yet again. February's BLS report showed nonfarm payrolls fell by 92,000; over the past six months, U.S. payrolls have fallen by 6,000 workers. Over that same time period, the labor force declined very slightly, and the unemployment rate went essentially unchanged. Taken together, this is not a picture of a labor market in freefall. When breakeven is near zero, modest job losses do not necessarily imply deteriorating conditions, however uncomfortable it may be. 

• What a Slower-Growing Economy Means for CRE Demand: A structurally smaller labor force and slower population growth do not derail the current CRE recovery cycle, but they do reshape the demand ceiling in ways that longer-horizon investors should incorporate. Slower household and labor force formation exerts a modest but real drag on multifamily absorption, office-using employment growth, tempers the pace of consumer spending growth and moderates the demand trajectory for distribution and logistics space tied to consumption. Critically, this is a structural moderation story, not a cyclical shock. The near-term recovery in transaction volume, debt market liquidity and equity formation remains intact. But the next cycle's return profile will increasingly depend on asset-level execution, income durability and market selection rather than assumptions of broad demand acceleration. 

DIVING DEEPER

AI Impact Barometer

A few weeks ago, Cushman & Wakefield released the first edition of the AI Impact Barometer. This new tool provides our industry with a data-driven platform tracking how one of the biggest economic shifts in generations, the proliferation of artificial intelligence, is influencing commercial real estate market performance in real time.  Armed with insights from the AI Impact Barometer, investors and occupiers spanning any of the major commercial real estate sectors can better position themselves to thrive as artificial intelligence reshapes economies and the built environment. 

Of course, long run forecasting tools will also play a critical role in helping real estate investors prepare for an increasingly AI-influenced future. Last month, we unveiled our latest scenario-based approach to forecasting AI’s impact on the U.S. economy and major property sectors External Link. 

But as hot-takes on AI’s potential impact pile on in global media, the focus has been on shock and awe-inducing (often wildly divergent) long-term predictions. Meanwhile, there has been little focus on the growing amount of data that provides a more grounded and nuanced perspective on how AI is already affecting economies and real estate markets today.

Source: CoStar, Cushman & Wakefield Research

 
Those latter, emerging shifts are what the AI Impact Barometer brings to the forefront. The barometer tracks AI’s influence on a range of economic forces and the four major commercial real estate properties sectors, as well as on the data center market. A few of the key trends highlighted within it include: 

• Amid rapid improvements to advanced computer vision, autonomous mobile robots and other AI technologies, the pace of distribution center automation in the industrial market has rapidly accelerated in recent years External Link. Distribution centers built after 2019 generally offer, on average, more than 20% high electrical power supply per square footage than their predecessors, making these next-gen properties well positioned to benefit from this shift. This is particularly the case for newer properties larger than 500,000 square feet, in which the economies of scale from investing in cutting edge automation are most beneficial. These larger properties are already garnering an outsized acceleration in leasing and occupancy improvements compared to their older and smaller counterparts.  

• AI’s proliferation appears to be driving a continuation of office market’s bifurcation trend External Link. Even as office-using employment flatlines and Class B and Class C vacancy rates continue to rise, Class A absorption rates are notably improving. The top ten U.S. counties for technology R&D/manufacturing employment concentration are seeing a particularly rapid decline in Class A space availability, and have also been garnering a rising share of office transaction activity since early 2024.  

• Trophy Class apartment properties are also outperforming External Link Class B and commodity Class A properties in rent and NOI growth for the first time in more than a decade. This is somewhat surprising given the record wave of deliveries over the past three years, and likely owes, at least in part, to AI’s contribution to booming stock market performance, which has boosted net worth among the wealthiest, discretionary renters in recent years. 

These are just a fraction of the trends highlighted within the barometer. We encourage you to dive in and explore the emerging shifts the barometer highlights for economies across the globe, as well as for your target property sectors. We also welcome your feedback as we continue to update and refine the barometer in the quarters ahead.  

February 2026  

QUICK BITES  

• Some monetary policy uncertainty has eased, with Kevin Warsh’s nomination as Fed Chair ultimately viewed as a relative positive that reinforced credibility and Fed independence. With markets now largely past that (potentially far worse) transition, expectations for roughly 50-75 bps of rate cuts in the back half of the year are helping to support confidence in economic growth and financial market conditions as we move through 2026. 
  
  
• Economic growth continues to demonstrate resilience, holding in the upper2% range despite trade uncertainty, geopolitical risk, tighter immigration, and elevated policy noise. 
  
  
• AI-driven capital investment has become a meaningful macro tailwind, contributing to growth while supporting consumer spending through wealth effects. 
  
  
• Consumer demand is increasingly wealth-dependent, with higher income households accounting for a disproportionate share of spending. This dichotomy is likely to continue in an era where AI accentuates the wealth effect for top earning households. 
  
  
• Financial markets are taking macro and geopolitical uncertainty (and equity market volatility) in stride, with credit spreads tightening and funding conditions remaining stable throughout the corporate bond and CMBS markets. 
  


• Capital markets conditions are gradually normalizing, with improving liquidity and tighter spreads supporting refinancing and price discovery, even as underwriting discipline remains firmly in place. 
  

KEY INSIGHTS

• 2026 Outlook: What’s Changing and What Isn’t: We are often asked how the outlook is evolving as we move into 2026, and whether this year represents a meaningful shift from last year. Our answer is that the backdrop feels far more like a continuation than a reset. Economic growth remains resilient and will be supported by a combination of fiscal stimulus and a capex–driven expansion alongside a strong wealth effect that continues to underpin consumer-driven activity. Labor market conditions are cooling, but not breaking, allowing growth to hold up in a way that is broadly consistent with 2025 (while also not forcing the Fed’s hand with further cuts just yet). As a result, the macro environment continues to support gradual forward progress rather than forcing a reassessment of the cycle. 
  
  
• The Recovery Is Real, but Uneven and Subject to Downside Risk: Transaction volumes and lending activity are recovering, but momentum remains uneven across sectors and geographies. Pricing has stabilized, but upward pressure has cooled, reinforcing why underwriting discipline still matters at this stage of the cycle. Importantly, recent equity market volatility (tied to tech and AI-related valuation concerns) has not translated into broader financial stress, suggesting financial conditions remain supportive even as uncertainty persists. 

• Capital Availability Has Improved, but Discipline Remains a Gatekeeper: Capital is clearly reentering the system across both debt and equity markets, but this has not translated into indiscriminate risk-taking. Instead, competition has intensified narrowly around high-quality assets, strong sponsorship, and clear cashflow visibility. On the debt side, the rebound in origination activity has been driven overwhelmingly by refinancing and maturity management rather than aggressive new acquisitions, signaling a market focused on triaging legacy capital stacks rather than expansion. On the equity side, activity continues to skew toward single asset transactions, reflecting a preference for asset level underwriting over broad market exposure. Importantly, underwriting standards remain firmly in place. Leverage levels are conservative; structures are tighter, and assumptions around exit pricing remain grounded. What looks like excess capital is better understood as synchronized lender reentry rather than a relaxation of discipline. This phase of the recovery is defined by precision and selectivity, not leverage or speed.
  
  
• Yield and Cash Flow Are Driving Decision Making: One of the most important shifts from last year is how decisive investors have moved away from replacement cost arguments, timing the cycle, or relying on future cap rate compression. Returns are increasingly being driven by in-place yield, durable income, and realistic exit assumptions. This shift is opening the door to selective interest in sectors that remain challenged from a sentiment perspective (most notably office) where excess yield is available for investors willing to underwrite risk carefully. The market is not broadly optimistic, but it is increasingly pragmatic.

• Risk Assessment Is More Concentrated: Rather than rising across the board, risk is becoming more concentrated. Properties with weaker cash flow, higher leverage, or less certain business plans continue to face limited liquidity, raising the likelihood of divergent outcomes as loan extensions mature, particularly for 2021 vintage originations. 
  
  
• What We’re Watching: Pressure to Act, Not Just Wait: Looking ahead, one of the most important dynamics to watch in 2026 is growing pressure on both (GP) owners and lenders to move forward. With loan extensions maturing, management fees accruing and patience wearing thin, the ability to delay decisions is diminishing. More owners are likely to meet the market rather than wait for further improvement in pricing or fundamentals, particularly where business plans or capital structures are under strain. At the same time, fundraising conditions are gradually improving, and dry powder is rebuilding, creating a growing pool of capital that is increasingly focused on deployment. The convergence of these forces (less flexibility on the sell side and more readiness on the buy side) suggests that deal flow may not surge, but it should broaden. Activity is likely to be driven less by strong optimism and more by necessity, pragmatism, and careful execution. 
  
  
• Early-Cycle Mindset Taking Hold: Taken together, these dynamics are consistent with an early cycle environment. Capital is returning cautiously; investors are focused on downside protection and asset level execution, and risk is being priced more precisely rather than ignored. The market may still lack full conviction, but it is no longer standing still. 

DIVING DEEPER

Equity’s Quiet Comeback Ahead  

The relative value advantage that propelled debt strategies to the forefront of investor allocations during the interest rate normalization (and CRE re-pricing cycle) is beginning to narrow. As equity yields have adjusted higher and as capital flows intensify, debt is no longer competing in isolation on yield and downside protection alone, a dynamic which is signaling a more balanced opportunity set across the capital stack as the new cycle advances. 

Debt’s leadership during the repricing phase was ultimately grounded in performance. And NCREIF and CREFC’s recent Open End Moderate Yield Debt Fund Aggregate provides a useful lens into how debt earned its leadership position. Their data is comprised of 12 open-end debt funds with approximately $31 billion in deployed capital over 500 loans allows for a comparison of private debt returns relative to NCREIF’s NPI. Over a 3-, 5-, 7- and 10-year time horizons, debt fund returns outpaced unleveraged equity returns by at least 100 bps, most notably over the 3-year window that captured the heart of the repricing period. For many allocators, the tradeoff was compelling: comparable or better returns than equity, with materially less volatility and seniority within the capital structure.

Sources: NCREIF’s Moderate Yield Index, Cushman & Wakefield Research

 
As the cycle advances forward, the conditions that made debt the clear relative-value winner are beginning to unwind. NCREIF data through Q3 2025 shows equity converging toward debt on a year-to-date basis, reflecting a meaningfully improved pricing environment for CRE equity. Notably, NCREIF’s fourth quarter data marked the first instance of positive rolling four-quarter appreciation returns after 11 quarters of decline, an inflection point that signals stabilization rather than continued capital appreciation loss. In select sectors, particularly retail and multifamily, total returns have already surpassed those offered by debt funds over the past year. 

At the same time, the rapid influx of capital into debt strategies has begun to erode the very return advantage that initially attracted investors. Lending spreads have compressed materially, and competition has pushed debt funds higher into the capital stack. The NCREIF/CREFC data show first mortgage LTV ratios reaching 75% at quarter end, well above the 61% average for fixed-rate loans originated in 2025 in MSCI Real Capital Analytics data. Importantly, this shift does not imply a deterioration in underwriting discipline. CRE values have already been corrected by 10%-25%, and early signs of price stabilization indicate that new originations are still being supported by substantive equity cushion. However, it does underscore an important reality: more capital pursuing a similar opportunity set, even with discipline intact, naturally constrains forward returns for debt. These dynamics are increasingly evident in fundraising behavior. In 2025, newly launched core and core-plus vehicles increased 72% year over year, as GPs moved to capitalize on improving liquidity, firmer pricing, and the re-emergence of income durability within equity portfolios.  

If investors must move higher in the capital stack to achieve returns competitive with equity, the relative appeal of senior debt diminishes. As the cycle matures and equity returns regain momentum, LPs are likely to continue shifting allocations toward core and core-plus equity strategies, where the upside from normalization and modest growth increasingly compensates for incremental risk. In this phase of the new cycle, equity is no longer competing against debt from a position of weakness, but from one of improving balance.