Commercial Real Estate Outlook for the Next Five Years
Income inequality and AI adoption are reshaping which markets thrive.
Private U.S. Commercial real estate values bottomed in the fourth quarter of 2024, the NCREIF Property Index shows, with office the last sector to find its floor in the second quarter of 2025. That timing gap between office and the rest of the market is the first clue that this cycle will not move in unison. Transaction activity picked up through 2025 as the gap between what sellers wanted and what buyers would pay began to close, though real capital had not yet come back in force by the time this data was reported. The market has a floor under it now, but the climb off that floor looks nothing like the last one.
None of that applies now. Recovery today depends on which property type, which city, and in some cases which block a given asset sits on. Institutional investors have responded by trimming their real estate targets, in some cases through formal changes to portfolio policy, after three straight years in which CRE lagged other major asset classes. The queues of investors trying to pull money out of open-end core funds peaked in the first quarter of 2024 and had shrunk substantially by late 2025, but enough of that backlog remains to keep real pressure on fund managers.
What replaces the old tailwinds determines which markets see leasing demand and which do not. Two forces are doing the work that low rates and broad job growth used to do: income growth that favors the top of the wage distribution, and the labor market effects of AI adoption. Where a market's employment base sits on that income curve now says more about its leasing demand than the national unemployment rate does. AI's fingerprint on the labor market in 2025 is already visible, even if the exact job count varies by estimate, and the roles it hit hardest, entry-level and administrative positions, were never evenly distributed across cities or building types. That unevenness is the thread running through every sector discussed below.
Capital flows back into CRE
Capital is returning to commercial real estate at real volume, but a wall of loan maturities and a sharp jump in refinancing rates are rewriting the terms on which that capital gets deployed, and will keep rewriting them through at least 2027.
Hundreds of billions of dollars in commercial and multifamily mortgage debt come due in 2026, with another large wave following in 2027. The loans that replace them carry rates roughly 200 basis points higher than what borrowers are paying off, so many sponsors must write a check for fresh equity, or sell. None of this amounts to a shortage of capital. It is a repricing event: the obstacle is timing, loan structure, and whether a borrower can still make the math work, not an absence of lenders willing to write checks.
Investment volume is climbing anyway. CBRE's 2026 U.S. Real Estate Market Outlook forecasts a 16% increase in CRE investment activity for 2026, which closes in on the average seen annually between 2015 and 2019. The CREDA H1 2026 U.S. Capital Markets Report found rising transaction volume, firmer pricing, and more REIT buying activity, all pointing toward growing investor confidence, with distress levels easing and industrial posting the strongest transaction growth of any sector.
Who is writing the checks is changing as fast as how many checks get written. In the second quarter of 2026, alternative lenders led non-agency loan closings, up from a year earlier; banks also grew their share, but CMBS lenders lost ground, CBRE's Q2 2026 Lending Momentum Index shows. Investors surveyed say they plan to lean more on private debt, private equity, and banks to finance property deals, and less on CMBS.
The CREDA report signals that net lending to commercial properties slowed in Q1 2026 as securitized loans paid down faster than they were replaced, and life insurance company lending to non-multifamily commercial properties stalled. A quarter-point Fed rate increase in September 2026 has weighed on both transactions and lending activity in the back half of the year. CBRE's Lending Momentum Index eased to 1.0 at the end of the second quarter, down from a five-year high of 1.5 in the first quarter, even though loan counts rose year over year and average loan size grew. Spreads and loan-to-value ratios are tightening at the same time. Lenders are competing on price rather than on how much leverage they will offer. That restraint matters for anyone underwriting a deal over the next two years, because where this capital is willing to land, and where it is pulling back, is already starting to sort the sectors that lead this cycle from the ones that lag it.
Industrial's continued lead and the AI infrastructure demand behind it
Industrial has already made the turn from recovery to expansion, carried by reshoring, the growing use of third-party logistics providers, and a buildout of AI infrastructure that treats warehouse and data center space as physical demand rather than abstract technology spending. It is the clearest growth story in commercial real estate right now, and every other sector in this outlook gets measured against it. But the sector's own numbers hide a split: some assets are capturing that growth, and others are being left behind.
CBRE expects annual industrial leasing volume to rise in 2026 to a record near 1 billion square feet, powered by manufacturers moving operations back to the U.S. and by companies that outsource distribution to third-party logistics providers. A "flight to quality" produces that headline number: tenants are choosing newer buildings over older stock, so the sector's average masks a widening gap between prime and secondary industrial space. If you read the top-line leasing figure alone, you would miss that older product in the same submarket may be sitting empty while new construction leases up fast.
Data centers are the fastest-growing piece of the broader industrial and infrastructure category, and CBRE expects 2026 data center leasing to hit an all-time high, with new supply increasingly held back by how long it takes to get power delivered to a site. Development is concentrating in emerging markets, particularly along a major Sun Belt interstate corridor and in regions with lighter electricity regulation, because land and power are easier to secure there. JLL's mid-year update found fit-out costs climbing in New York between the first quarter of 2025 and the first quarter of 2026, and it found that construction costs amplify supply shortages, so new project starts keep falling and the prime supply shortage keeps deepening across both industrial and office.
MetLife's outlook takes on the question of whether data center investment has run ahead of demand, acknowledging the concentration risk in the sub-sector directly, but arguing that modern portfolio theory still supports the allocation because data centers bring diversification benefits to a mixed real estate portfolio that other property types cannot replicate. That is a defense built on risk math, not on a claim that demand for data center space is guaranteed to keep pace with construction.
You can find the clearest evidence that investors already believe in industrial's lead in the transaction data itself. The CREDA H1 2026 report found industrial posted the strongest transaction growth of any sector tracked, which is as direct a signal as capital markets offer that pricing has already adjusted and investors have already committed. Industrial is the recovery other sectors are still working to catch up to, and the prime-versus-secondary split inside it previews the same dynamic that defines office and multifamily.
Office's bifurcated recovery, why the sector average is misleading
Office is not stuck in terminal decline, and it is not simply "back." The sector is recovering in a narrow band of buildings and cities while the rest of its square footage continues to struggle, and that split means the national vacancy rate tells an investor almost nothing useful about any single asset.
CBRE expects office leasing activity to surpass 2019 levels in 2026, with prime space growing scarcer by year's end and large occupiers returning to the market in volume sufficient to push demand into the next tier of available space in markets further along in their recovery. MetLife's outlook names where this is happening: markets with deep talent pools and clustered industries. Office performance tied to generic "return to office" headlines is not a reliable signal, and MetLife finds select markets and segments still priced below what their fundamentals justify.
The same AI labor dynamic reshaping industrial demand is working against office at its weakest point. Entry-level and administrative roles have historically filled the bulk of office floors, and AI adoption has hit them among the hardest. So the recovery ends up concentrated into fewer, higher-quality markets rather than lifting the sector evenly.
JLL's August 2026 update traces the same split globally. Well-located secondary buildings are picking up spillover demand in markets where the supply pipeline is thinnest, naming London, New York, and Tokyo, while in other markets the distance between prime and secondary performance keeps widening. A building's address and construction era now predict its leasing outcome better than the headline vacancy figure for its metro area does.
Quality has become a financial lever. JLL's Future of Work survey found that most organizations now prefer buildings with AI-enabled systems over those with basic building management, most would choose building quality and amenities over a prime location, and more than two-thirds of both office and frontline employees say their workplace contributes to their productivity. A plurality of occupiers point to hospitality-grade, AI-enabled buildings as one of the scenarios most likely to reshape their real estate portfolios over the next three to five years. Office demand has not disappeared. Office demand has concentrated into assets and markets that meet a bar most of the existing stock cannot clear. Underwriting an office deal now requires submarket and building-level analysis rather than a bet on the sector as a whole.
Multifamily's oversupply problem, when the market clears
Multifamily carries the strongest long-run demand fundamentals of any major commercial real estate sector, but oversupply has concentrated in the Sun Belt and parts of the Midwest, so rents and margins in the hardest-hit markets won't recover before late 2027. Strong fundamentals and a near-term glut can coexist, and this sector proves it.
CBRE expects positive net demand to continue through 2026, but it also flags a large volume of newly delivered apartment units that still sit unleased in many markets, concentrated in the Sun Belt and Mountain regions. Landlords in those markets are prioritizing one thing above all else in 2026: keeping the tenants they already have. MetLife's outlook puts a date on the pain: it projects that Sun Belt multifamily margin compression will persist until late 2027.
The same K-shaped income pattern driving office's reconcentration is splitting multifamily geographically. Coastal multifamily markets, where high-income households are most concentrated, benefit from the same wage growth that lifts prime office demand. Sun Belt multifamily built aggressively from 2021 through 2023 on the strength of pandemic-era migration, and now faces softer demand as that migration slows and the supply built to meet it still needs to be absorbed. The sector's fundamentals stay intact over a longer horizon, but if you underwrite a Sun Belt multifamily deal today, you are buying into a recovery timeline measured in years, not quarters, and margin pressure in the hardest-hit markets won't ease before late 2027.
