Policy shocks, persistent growth.
Despite trade tensions, lingering inflation, and geopolitical fractures, 2025 proved a year of remarkable economic resilience powered by strong balance sheets, nimble policy, and accelerating AI, forces that will shape 2026, with the U.S. at the center of both optimism and concern.
The CRE cycle has moved into recovery.
REIT valuations—often a bellwether for cyclical turning points—have broadly risen since their 2023 trough. Valuations across most major indices have stabilized and credit conditions are functioning again, even as distress continues to climb as a lagging indicator reflecting the long tail of the downturn.
A rising tide will no longer lift all boats.
Returns are diverging sharply across sectors, regions, and strategies, signaling a shift from a broad downturn to widening dispersion. We believe the cycle ahead will be alpha-driven and real estate investors will need to focus on asset and market selection to drive performance.
Income to be the key driver over the next 12-18 months.
Unlike the post global financial crisis (GFC) era that benefited from accommodative policy and financial engineering, the next phase of real estate performance will depend on strong fundamentals and effective asset management, as net operating income becomes the key driver of income and capital returns in a higher-for-longer rate environment, making disciplined execution essential for meeting return targets.
Portfolios will become more globally diversified.
Rising geopolitical uncertainty and a broader shift towards global diversification are pushing investors to reassess geographic concentration, and while the U.S. remains too large to ignore, capital is becoming more selective as Europe benefits from improving fundamentals and more accretive leverage and Asia draws greater interest given how under-allocated it is relative to its share of the global investable CRE universe.
If the global macro landscape feels unusually complex and disorderly, that’s because it is. We’re not imagining the heightened uncertainty—we’re witnessing multiple structural transformations colliding and interacting in real-time, creating a genuinely more complex and volatile environment than we’ve seen in recent decades. Read our full macroeconomic overview (PDF).
In this environment, we believe real estate investors should focus on what they can control: driving net operating income growth. Achieving this will require disciplined property, market, and fund selection, as return dispersion across real estate continues to widen—the central theme for 2026 and beyond.
Our central theme is that dispersion in returns is widening as structural shifts in demand drivers, capital flows, and local fundamentals reshape markets. Picking the right property types in the right markets is essential to outperformance.
Read about some of the key themes we believe will have the most significant impact on investor strategies in 2026:
Our comprehensive capabilities across all four real estate quadrants provide a holistic and actionable strategy for 2026.
Private equity
Improving
“The nascent CRE recovery presents a unique window of opportunity, where astute investors can achieve potential outperformance through selective positioning across assets, sectors, and markets.”
Devin Chen
Head of Private Equity Portfolio Management
Public equity
Improving
“REITs provide a compelling alternative with low correlations to AI-linked mega-cap tech names, offering a differentiated return profile. This makes REITs an attractive option for investors...”
Kelly Rush, CFA
CIO, Real Estate Securities & CEO, Public Real Assets
Private debt
Attractive
“Steep remaining maturity schedule and ongoing momentum in sales transactions will continue to generate more attractive lending opportunities.”
Chris Duey
Head of Private Debt Portfolio Management
Public debt
Attractive
“... CMBS continues to offer competitive yield, and the SASB market remains an appealing alternative and complement to private real estate debt given its liquidity.”
Laura Rank, CFA
Head of Structured Credit, Portfolio Manager
UNITED STATES
Data centers
Demand continues to outpace supply, driven by AI and cloud adoption, with power constraints shaping development timelines and regional growth.
Residential
Fundamentals are improving as new supply has fallen to trend and demand is accelerating. Performance remains bifurcated across regions and subtype.
Industrial
Trade policy uncertainty continues to weigh on leasing decisions, but tenant demand for newer, larger facilities remains strong. Supply pressures have receded.
Retail
Strong fundamentals and limited new development sustain pricing power. Performance will be dictated by consumer sentiment and real spending power.
Healthcare
Operational improvements and rising occupancy support recovery, but funding and policy uncertainty remain headwinds.
Student housing
Occupancy and rent growth remain solid, but moderating enrollment trends and rising competition warrant selectivity.
Office
Nascent signs of a recovery are emerging; however, fundamentals remain weak with elevated vacancy. Stabilization is most evident in core assets and markets.
Life sciences
Overdevelopment and weak venture funding continue to pressure demand, delaying recovery despite long-term growth drivers.
EUROPE
Data centers
Europe’s best-performing sector, with demand exceeding supply for a third year and growth shifting toward secondary markets amid grid constraints.
Residential
Structural forces including urbanization, evolving household structure, longer rental tenures and constrained supply drive a strong outlook.
Industrial
Performance normalized. Beneath the surface, a differentiated outlook is emerging, with demand focusing on future-proof assets in core locations.
Hotel
Trading well, though with pockets of strength and softness across markets. The key opportunity lies in repositioning neglected assets in specific locations.
Retail
Positive fundamentals are lifting top-tier high street and convenience retail, while older secondary schemes remain under pressure.
Student housing
Robust international student demand in continental Europe offsets weaker UK flows, keeping the sector selectively attractive.
Healthcare
Rising transaction activity, higher occupancy, and improving operator margins signal better conditions for care homes and clinics.
Office
Signs of stabilization emerge, yet demand remains polarized toward prime CBDs as hybrid work and ESG continue to reshape the market.
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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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MM13826‐03 | 12/2025 | 4978760-012027