As we move further into 2026, the commercial real estate landscape is defined by a mix of recovery, correction, and distinct opportunities across sectors. During our recent economic outlook CoStar Group’s National Director of Market Analytics, Juan Arias, shared that while headwinds remain — particularly regarding labor force growth and interest rates — smart capital is finding ways to capitalize on the market’s “reset.”

Here is what investors and property owners can expect for the economy and major asset classes in the year ahead.

The Economic Backdrop: A “Soft Landing” with Caveats

The broader economy is stabilizing, but growth is moderating. Real GDP growth hovered around 1.9% to 2% for 2025, with a slight uptick forecasted for 2026. This growth is being driven largely by investment in AI, data centers, and semiconductor manufacturing.

However, a critical challenge facing CRE demand is the slowdown in labor force growth. With net international migration slowing and the retirement-age population growing faster than the working-age population, employment gains are expected to remain sluggish. As Arias noted, “A slowdown in labor force growth is typically followed by a significant uptick in commercial real estate vacancies across major property types”.

Sector-by-Sector Outlook

1. Multifamily: The Supply Wave Crests

The multifamily sector is emerging from a period of record supply, particularly in the Sunbelt markets like Miami, Austin, and Phoenix. While vacancy rates have hovered above 8% due to this influx, the pipeline of new construction starts has dropped significantly — down 70% from peak levels.

• The Opportunity: The supply/demand balance is improving. Markets with limited new construction, such as San Jose and Cleveland, offer opportunities for aggressive rent growth because they lack competing inventory.
• Market Observation: There is a significant “arbitrage opportunity” in the market right now. John LeTourneau, Director of Commercial Brokerage Operations at eXp Commercial, highlighted the gap between pro-forma cap rates and current debt resets, noting that this pressure is “forcing properties to the market,” creating a window for investors to acquire assets at corrected pricing.

2. Industrial: Flight to Quality & Small Bay Resilience

The industrial sector is experiencing a divergence. Demand has shifted decisively toward newer properties (less than 5 years old) with higher clear heights (36-40 ft), while older facilities are seeing negative absorption.

• The Challenge: A persistent supply overhang, particularly in the mid-size logistics segment (100k–500k sq. ft.), continues to dampen rent growth.
• The Bright Spot: Small bay industrial (under 100k sq. ft.) is outperforming. These properties are seeing a recovery in leasing activity and offer “mark-to-market opportunities for pre-pandemic rents,” according to Arias.

3. Retail: The Star Performer

Contrary to the “retail apocalypse” narrative of the past decade, retail is currently one of the healthiest property types, boasting historically low vacancy rates around 4%.

• Why It’s Winning: A decade of limited construction has created a supply shortage. While big-box retailers face some headwinds from bankruptcies, small retail strip centers are thriving.
• Strategist’s Take: LeTourneau emphasized that this dynamic is a “huge tailwind for small retail strip centers with units under 5,000 square feet,” which are currently performing exceptionally well.

4. Office: A Bifurcated Market

The office sector remains the most challenged, with vacancy rates at historical highs of roughly 14%. However, leasing activity has recovered from its 2021 lows, driven by a “flight to quality.”

• The Trend: Demand is concentrated in high-quality, trophy office space in specific growth markets like Miami, Dallas, and Charlotte. Meanwhile, older suburban office campuses face continued struggles, presenting potential opportunities for conversion or land plays.

The Outlook for 2026

The “wait and see” approach of previous years is no longer viable. Transaction activity is recovering, jumping 46% year-over-year, led by multifamily and office.

For investors, the key is to stop looking at comparable sales from the past and start underwriting for the future. As LeTourneau advised during the session:

“Comps are valuable but only speak to markets we’re no longer in… You have to be looking forward and taking your underwriting and being forward-setting to skate where the puck is going to be.”

Whether it is targeting small-bay industrial, acquiring distressed multifamily assets, or capitalizing on the scarcity of small-shop retail, 2026 will be a year defined by strategic positioning rather than passive holding.

This article is provided for general informational purposes only and does not constitute investment, legal, tax, or financial advice, nor a solicitation to buy or sell any security or real estate interest. Readers should consult their own professional advisors before making any investment or business decisions. Market data provided by CoStar Group.The views expressed reflect individual market perspectives and do not represent investment recommendations or company forecasts. Certain statements may be forward-looking in nature and are based on current expectations, which are subject to change due to economic and market conditions.