Key facts
- Commercial real estate saw a strong start to 2026 with $113B in transactions in Q1.
- A war with Iran and rising Treasury yields above 4.5% in May shifted market sentiment.
- CRE sales experienced a 33% year-over-year decline in April.
- Industry insiders are adjusting strategies, with some focusing on distressed assets and others waiting for rate cuts.
- New development is near historic lows in many CRE sectors, creating opportunities for some investors.
Commercial real estate experienced a robust start to 2026, with transaction volumes reaching $113 billion in the first quarter, the highest since before interest rate hikes. However, this positive momentum was disrupted by geopolitical events and rising interest rates. The outbreak of war with Iran and the 10-year Treasury yield surpassing 4.5% in May led to a significant downturn, with CRE sales falling 33% year-over-year in April.
Industry experts, including CBRE economist Matt Mowell, have acknowledged the need to revise earlier optimistic forecasts. Many real estate professionals surveyed by Bisnow had anticipated rate cuts and a thawing market at the beginning of the year. However, the reality of tariffs and persistently high rates has reshaped the landscape.
In response to the challenging environment, real estate insiders are adopting varied strategies. Some are actively seeking distressed assets, viewing the current hesitation from others as an opportunity to acquire properties at lower prices. These investors emphasize problem-solving and disciplined deal-making, focusing on markets with strong fundamentals and limited competition, rather than waiting for perfect conditions or rate cuts. Others are proceeding with existing projects that are too costly to pause, while holding back on new ventures that relied on the assumption of falling rates.
Specific sectors like affordable and workforce housing in areas such as Miami-Dade are demonstrating resilience, with demand remaining strong regardless of rate cycles. However, some markets, like New York City, are described as nearly impossible to invest in due to high borrowing costs, anti-development policies, and budget deficits, prompting questions about the viability of investing there.
Professionals are also adapting their approach to debt, looking to avoid expensive bridge debt by structuring new deals differently and focusing on markets with limited supply and high barriers to entry. The overarching sentiment is one of adaptation and selective engagement, with many moving forward on their own terms rather than waiting for a broad market recovery.