Access our full year 2026 Annual Outlook: 2026 Inside Real Estate Outlook: A Cycle of Selectivity
An even more complicated world.
We entered 2026 with a constructive outlook, grounded in the resilience of the global economy despite persistent headwinds and uncertainty, a commercial real estate (CRE) cycle that had entered recovery by nearly every traditional measure, and improving investor sentiment. The geopolitical backdrop in the first half of 2026 has been more volatile than anticipated, to say the least.
Resilient economy, but margin for error tightens.
Higher energy prices are beginning to feed through to inflation, especially in Europe. However, economic growth remains robust as consumer spending continues to holds up despite higher costs, while the capex cycle – supported by AI-related investment – surprises to the upside. This combination has pushed global yields higher, and markets have materially revised their outlook for central banks, shifting from expected rate cuts in 2026 to renewed tightening across several developed markets. The economy is not in recession, but the margin for error has narrowed.
We believe the CRE recovery remains intact.
Private valuations continue to rise, debt capital is readily available, and transaction volumes accelerated in 1Q26. Sentiment indicators suggest investors are more deliberate in their decision-making but haven’t lost conviction. U.S. listed REITs, a leading indicator, transitioned from recovery into expansion, while distress, a lagging indicator, show early signs of peaking.
There’s more to the story than the headline suggests.
While aggregate returns point to a U-shaped recovery given a relatively muted trajectory, we believe it is more accurately characterized as K-shaped given significant dispersion across property types, markets, and even fund vehicles. NOI growth is the key driver of total returns, fueling both income and capital appreciation in an environment where meaningful cap rate compression may not materialize. Property type selection still matters, but the more compelling alpha opportunity lies in identifying the right global markets offering the highest annual rent growth.
CRE is not a monolithic asset class.
Portfolios are likely to become increasingly global, with a role for all four quadrants: public and private, equity and debt. Each serves a distinct purpose and, combined thoughtfully, can optimize outcomes. Private CRE debt stability remains underappreciated. CMBS SASB offers liquidity, single-loan transparency and capital structure optionality. Listed REITs, when paired with private equity, reduce portfolio volatility. And private equity offers exposure across the full risk spectrum - from core through opportunistic - while targeted strategies enable alpha capture in high-conviction themes like data centers and living.
Our comprehensive capabilities across all four real estate quadrants provide a holistic and actionable strategy for 2026.
Private equity
Improving
“The recovery in real estate is underway, though progressing unevenly across sectors and markets. We view this as a highly differentiated and compelling environment to generate alpha through selectivity and execution. Despite ongoing geopolitical uncertainty, repricing and declining new supply are creating an attractive entry point, particularly in sectors supported by strong secular demand drivers such as data centers and rental housing.”
Devin Chen
Head of Private Equity Portfolio Management
Public equity
Improving
“The ‘REIT Reawakening’ of 2026 follows a two-year period of modest gains, supported by durable earnings growth, attractive relative valuations, and investor interest in diversifying concentrated AI-related equity exposure. Public real estate continues to trade at a discount to private markets, while listed REITs offer scalable platforms to access high-quality markets and alternative sectors across the U.S. and globally.”
Kelly Rush, CFA
CIO, Real Estate Securities & CEO, Public Real Assets
Private debt
Attractive
“CRE credit markets remain open, with all major lenders active across investment strategies. A robust maturity schedule and improving investment sales volumes are supporting deal flow, though recent volatility and higher Treasury yields have delayed some borrower decisions. As real estate markets recover, we continue to view 2026 as an attractive vintage for private debt.”
Chris Duey
Head of Private Debt Portfolio Management
Public debt
Attractive
“Commercial real estate fundamentals remain supportive of the CMBS market, with lagging distress indicators expected to stabilize later this year. Gross issuance is still projected to exceed 2025 levels, though forecasts have been modestly reduced amid higher rates tied to Middle East tensions. SASB transactions are increasingly driving issuance, supported by liquidity, attractive spreads, and compelling carry.”
Laura Rank, CFA
Head of Structured Credit, Portfolio Manager
UNITED STATES
Data centers
Data centers demand is robust driven primarily by cloud and AI demand. Low vacancy and power-constrained development continue to support rent growth.
Residential
The sector is stabilizing as demand remains healthy. Lower levels of new construction will help lower vacancy rates and shift the pricing pendulum from tenants to landlords.
Industrial
Newly delivered space is still being absorbed, and tenants are navigating trade uncertainty. Modern assets remain highly sought after by tenants and investors.
Retail
Necessity-based retail remains a bright spot, supported by bar- belled consumer spending, high-income households, and limited new supply.
Senior housing
Demand is robust, driven by strong post-pandemic recovery. Despite healthy fundamentals, longer term challenges complicate the sector’s economics.
Student housing
Fundamentals remain solid, but competition is increasing. Performance is expected to be nuanced regionally, with a particular focus on the South.
Office
The sector is experiencing a nascent recovery. Demand and occupancy improvements are modest but evident. Asset quality remains the primary focus.
Life sciences
Oversupply and weak demand remain problematic amid the slowdown in VC funding. Construction has slowed, but near-term leasing and rent growth challenges remain.
EUROPE
Data centers
Record construction activity has not kept pace with demand, lowering vacancy rates as the sector expands geographically and grows more segmented and complex.
Residential
Demand is expected to remain robust driven by international migration, urbanization, and positive household formation trends; while construction activity remains constrained.
Industrial
Moderate prospects compared to last cycle. Fundamentals are broadly balanced. Defence and infrastructure fiscal spending should provide an additional tailwind.
Hotel
Conditions remain moderately positive amid a normalization of occupancy levels and easing pricing power. Europe could benefit from a reallocation of demand away from the Middle East.
Retail
Retail outperformed most sectors in 2025 with 7.9% annualized returns. However, varying demand across markets and segments makes selective investing essential.
Student housing
Mainland Europe is increasingly attractive, while the UK market outlook is subdued amid tighter student visa rules, higher tuition fees, and a higher cost of living.
Healthcare
Market conditions are improving after a period of operational pressure and restructuring. Care operators are reporting stronger revenues and renewed cash focus.
Office
The office sector has yet to fully recover, but high-quality assets in supply-constrained submarkets continue to see strong demand, limited availability, and record rental growth.
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Risk considerations
Investing involves risk, including possible loss of Principal. Past Performance does not guarantee future return. All financial investments involve an element of risk. Therefore, the value of the investment and the income from it will vary and the initial investment amount cannot be guaranteed. Potential investors should be aware of the risks inherent to owning and investing in real estate, including value fluctuations, capital market pricing volatility, liquidity risks, leverage, credit risk, occupancy risk and legal risk. All these risks can lead to a decline in the value of the real estate, a decline in the income produced by the real estate and declines in the value or total loss in value of securities derived from investments in real estate. Portfolios concentrated in real estate securities may experience price volatility and other risks associated with non-diversification. While equities may offer the potential for greater long-term growth than most debt securities, they generally have higher volatility. Additionally, real estate investment trusts (REITs) may also be affected by tax and regulatory requirements. Commercial real estate (CRE) investing carries several inherent risks, including those related to the economy, interest rates, market fluctuations, high upfront costs, and tenant-related issues like defaults or high turnover. Economic downturns can lead to decreased property values and increased vacancy rates, while financing costs, insurance expenses, and potential environmental or structural problems can also pose significant challenges. All these factors and risks can impact rental income and overall investment returns. International and global investing involves greater risks such as currency fluctuations, political/social instability and differing accounting standards.
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