US real estate outlook – Edition June 2026

Capital markets improve

US commercial real estate markets showed continued signs of stabilization in 1Q26, despite still-elevated financing conditions and increased geopolitical uncertainty. During the quarter, debt availability strengthened meaningfully, rising 52% from a year earlier, as lenders selectively expanded originations. Although financing costs remained elevated relative to pre-tightening cycle levels, improved liquidity and greater confidence in valuations helped narrow bid-ask spreads and boost transaction activity. The resilience of these trends was particularly notable given the heightened geopolitical uncertainty and market volatility that followed the late-February escalation in the Middle East.

Transaction volumes accelerate

Total transaction volume in 1Q26 was USD 136 billion, up 27% year-over-year and 7.4% above the five-year first-quarter average. Activity increased across several property types, led by a sharp acceleration in senior housing (+194.2%) as investors sought greater exposure to sectors with favorable demographic tailwinds. Office (+38.6%) continued to attract value-add and opportunistic buyers, while industrial (+27.3%) regained momentum. Gains in apartments (+0.5%) and retail (+2.8%) remained mostly unchanged.

Figure 1: NCREIF property sector performance (ODCE properties)

Note: Income return and capital return may not sum to total returns due to rounding. Calculations are based on quarterly returns of individual properties within NCREIF property index filtered for Open-end Diversified Core Equity (ODCE) properties before deduction of investment management fees. Annual returns are geometric time-weighted returns. Source: NCREIF Property Index filtered for Open-End Diversified Core Equity (ODCE) properties as of March 2026. For illustrative purposes only. Past performance is not indicative of future results.

Sector performance remains uneven

Despite positive momentum, performance remained uneven across property types, with total returns primarily supported by stable income rather than capital appreciation. The NPI-ODCE (National Council of Real Estate Investment Fiduciaries Property Index – Open-End Diversified Core Equity) delivered an annual total unlevered return of 4.9% in the year ending March 2026, with capital returns contributing only 0.3% (see Figure 1).

By property type, senior housing led performance, delivering a total return of 17.3% over the trailing one-year period. Performance was supported by a 10.5% capital return, as investor confidence in aging demographic tailwinds drove competitive pricing. Self-storage (7.4%), retail (7.0%), and apartments (5.2%) all posted total returns above the benchmark.
Conversely, office (4.7%) and industrial (3.6%) underperformed, as negative capital returns dragged on overall performance.

We continue to expect a period of modest appreciation while ‘higher-for-longer’ interest rates persist. In this environment, outperformance will rely less on market beta and more on execution – specifically, disciplined asset selection, active management and operational excellence to drive net operating income (NOI) growth. Generating superior returns will require a focus on value-add and development opportunities, targeting high-growth markets with supply constraints, and allocating to sectors benefiting from durable structural tailwinds.

Figure 2: Sector fundamentals (%)

Source: CBRE-Econometric Advisors as of March 2026.
Notes: Completion and absorption rates shown are the total supply delivered and absorbed over four quarters as a percentage of inventory.

The apartment sector

US apartments posted solid annual total returns in the year ending March 2026, modestly outperforming the all-property benchmark. The NPI-ODCE apartment sector delivered an annual total unlevered return of 5.2%, exceeding the benchmark’s 4.9% result over the same period. Performance was driven primarily by a 4.4% annual income return, as appreciation only contributed a moderate 0.8%.

Performance by subtype and region

High-rise led subtype performance due to stronger urban price recovery, delivering a 7.0% annual return, ahead of mid-rise (5.0%), garden (4.6%), and low-rise (3.7%). By region, Midwest markets outperformed, delivering a 7.5% annual return as subdued completions over the past two years kept fundamentals healthy. Southern markets (5.7%) came in second, followed by East (5.4%) and then Western markets (3.9%).

Apartment fundamentals improve

Steady performance across apartment segments is a reflection of the solid underlying fundamentals that supported returns. Demand was the standout metric in 1Q26, with absorption reaching 78,000 units, approximately 32.3% above the five-year first-quarter average. That strength reflected a rebound from late-2025 move-outs and still-solid renter demand, even as the labor market remained uneven nationally. Deliveries slowed to 58,000 units during the quarter, marking the lowest quarterly level since 1Q21. Vacancy fell by 20bps over the quarter to 4.8%. Despite tighter market conditions, rents increased only marginally by 0.2% year-over-year. Looking ahead, easing completions should continue to improve apartment fundamentals, though labor-market uncertainty may temper gains through 2026 (see Figure 2).

The industrial sector

US industrial performance moderated in 1Q26, weighed down by weak performance in Western markets, which account for nearly half of the index. The NPI ODCE industrial sector delivered an annual total unlevered return of 3.6%, compared to 4.9% for the NPI ODCE all-property index. This performance was underpinned by a trailing one-year income return of 3.9%, as capital values edged down by 0.2%.

Performance by subtype and region

Regionally, Southern markets posted the highest trailing one-year total return at 7.2%, supported by several secondary industrial markets benefiting from strong population growth. The Midwest (6.5%) and Eastern (5.1%) regions followed, while Western markets (1.1%) lagged significantly due to reduced port activity and a rebalancing of rent levels.

Industrial fundamentals stabilize

National net absorption during the quarter was 34 million square feet, well below the five-year first-quarter average of 45 million square feet. This subdued absorption reflects occupiers’ cautious stance on expanding their footprint amid ongoing tariff pressures. Deliveries during the quarter totaled 44 million square feet, decelerating from both the prior quarter and a year earlier. Availability held steady at 9.3% for a third consecutive quarter, while rent growth rose moderately by 0.6% over the year. US industrial fundamentals are expected to stabilize as new supply moderates, though lingering tariff pressures and economic uncertainty could weigh on activity (see Figure 2).

Sources: NCREIF, CBRE-EA, March 2026.

The office sector

The US office sector posted positive annual total returns in the year ending March 2026, modestly trailing the broader benchmark. The NPI ODCE office sector delivered an annual total unlevered return of 4.7%, boosted by income returns (5.8%), which helped offset negative capital returns (-1.0%).

Performance by subtype and region

Central business district (CBD) assets led subtype performance with a 5.9% trailing one-year total return, outperforming suburban properties at 3.7% as gateway leasing and quality preferences improved. The West led regions at 5.5%, followed by the East at 4.3%, reflecting a stronger recovery in key gateway and technology hubs like New York and San Francisco.

Office fundamentals remained challenged, despite pockets of growth

Office fundamentals also revealed areas of strength, despite ongoing challenges across the sector as a whole. Office vacancy remained elevated at 18.6% in 1Q26. Net absorption reached 6.0 million square feet, outpacing deliveries for the third consecutive quarter; however, leasing activity remained concentrated in high-quality assets within gateway and tech markets, with 68% of net absorption occurring in San Francisco and New York (see Figure 2).

The retail sector

Retail remained a bright spot in 1Q26, outperforming all other core sectors. The NPI ODCE retail sector delivered an annual total unlevered return of 7.0%, supported by both income return (5.5%) and capital return (1.5%).

Performance by subtype and region

By subtype, strip centers led at 8.1%, due to sustained demand for service-oriented retailers. Mall performance followed at 7.5%, while street retail lagged at 2.5%. The Midwest led regional performance, delivering an 8.2% total return, supported by stronger rent momentum and a more balanced supply environment compared with other regions. Southern markets (7.1%) also posted solid performance, as robust population growth boosted retailer demand.

Retail demand cooled but stayed resilient

Despite strong returns, underlying market fundamentals showed signs of cooling during the quarter. Overall demand for retail space softened during the first quarter of 2026, with absorption slowing to 641,000 square feet, 84.7% below the five-year first-quarter average. Deliveries also slowed to 1.4 million square feet, falling below the trailing annual quarterly pace. Vacancy edged higher over the quarter to 6.8% but remained near historic lows. Looking ahead, we believe US retail should remain resilient, as limited deliveries should support healthy fundamentals (see Figure 2).

The senior housing sector

The senior housing sector continued to deliver robust performance during the first quarter of 2026 as investors responded to improving operating conditions and growing confidence in the sector’s long-term demand outlook. The NPI ODCE senior housing sector delivered an annual total unlevered return of 17.3% in the year ending March 2026, powered by a 10.5% capital return.

Senior housing fundamentals strengthen

Underlying fundamentals continued to strengthen, with occupancy increasing by 40bps over the quarter to 89.5%. By subtype, independent living rose to 91.1%, while assisted living climbed to 87.9%, reflecting sustained demand across care segments. Strong fundamentals were supported by record low inventory growth (0.4%) combined with record high absorption rates (3.1%) over the trailing year. Rising occupancy and low inventory growth drove asking rents up 4.6% year-over-year.

The outlook is bright

The combination of rising occupancy, durable rent growth, and constrained construction activity continues to create favorable conditions for revenue growth and margin expansion, reinforcing investor optimism toward the sector’s outlook.
 

AI-expenditure drives growth

The US economy remained resilient in the first quarter of 2026 despite lingering trade pressures, increasing geopolitical conflict, and accelerating inflation. Real GDP expanded at an annualized rate of 2.0% in 1Q26, slightly below consensus expectations of 2.3% (see Figure 3). Economic activity was driven by a surge in business investment, particularly in artificial intelligence (AI)-related equipment and intellectual property, which contributed 1.4 percentage points to overall GDP growth. However, expansion was tempered by slower consumer spending, which contributed 1.1 percentage points, as households cut back on goods despite continued spending on services.

Hiring remains moderate

These mixed signals in output and demand were mirrored in labor market developments, where resilience persisted but underlying momentum showed signs of moderation. US job growth surged in March and April, with employers adding 178,000 and 115,000 jobs respectively, rebounding sharply after February’s losses. The unemployment rate remained unchanged at 4.3% in April. Despite strong gains led by the healthcare and service sectors, overall job creation has slowed compared with previous years.

Figure 3: Real GDP quarterly annualized forecast (%)

Source: Moody's Analytics, forecast as of 7 April 2026. UBS Investment Bank, forecast as of 6 May 2026. Past performance is not a guarantee for future results.

Inflation and labor market cloud Fed outlook

Moderating employment gains and the recent acceleration of inflation have created new uncertainty around the Federal Reserve’s policy outlook. The core Personal Consumption Expenditures (PCE) Price Index, a key inflation metric for the Federal Reserve, rose by 3.2% in March, partly due to higher global energy prices. Against this backdrop, the Federal Open Market Committee decided to hold the policy rate steady in a range of 3.5% to 3.75% throughout 1Q26. Policymakers have emphasized a data-dependent stance, signaling that premature easing risks reigniting price pressures even as labor market conditions moderate.

Positive but tempered outlook

Looking ahead, we expect real GDP to grow modestly near its long-term trend of 2.2% in 2026, with headline resilience masking increasingly narrow sources of expansion. Investment and productivity gains driven by AI adoption should provide meaningful medium-term upside, but near-term growth remains vulnerable to tariff-related cost pressures, elevated energy prices linked to the Middle East conflict, and soft domestic demand outside technology and higher-income consumption. Tariff headwinds and higher energy costs represent a meaningful drag on real purchasing power, but fiscal support, including provisions associated with the One Big Beautiful Bill Act and the seasonal impulse from tax refunds, should help stabilize demand into mid-2026.

With core PCE inflation above 3%, the FOMC faces a narrow path; our base case is no rate cuts in 2026 as accelerating inflation is likely to keep monetary policy in a restrictive stance. For commercial real estate investors, this environment argues for tempered expectations regarding asset price appreciation, greater selectivity, and a preference for sectors with durable cash flow fundamentals, including residential and specialized asset classes, like senior housing, with visible NOI growth.