Introducing the U.S. CRE Health Index
- The U.S. CRE Health Index is a tool that evaluates U.S. commercial real estate for 15 different factors across five pillars: Capital Markets, Transactions & Flows, Debt & Distress, Fundamentals, and Sentiment.
- The index has historically led changes in commercial property prices by approximately one quarter and currently scores 46/100, placing the market on the slightly cautious side of neutral.
- The strongest buying opportunities have occurred when index readings are at their lowest levels and market conditions appear most challenged, while the greatest downside risk has emerged when readings are elevated and optimism is widespread.
- While higher interest rates are likely to create modest headwinds for headline property prices, we believe the more important story is growing dispersion across assets and markets. Investors focused on net operating income (NOI) growth, asset selection, and active management should increasingly be able to differentiate themselves from the broader market.
Five pillars | Score | Level | Direction |
|---|---|---|---|
| Capital Markets Elevated Treasury yields are putting upward pressure on cap rates and downward pressure on property values. | 33/100 | Below trend | Stable |
| Transactions & Flows Headline transaction activity remains healthy, although growth is being driven disproportionately by portfolio- and entity-level transactions rather than individual property sales. | 52/100 | Neutral | Improving Steady |
| Debt & Distress Debt capital markets remain open and liquid, though lending standards may start to tighten and distress remains elevated. | 60/100 | Neutral | Stable |
| Fundamentals Property fundamentals remain on solid footing, supported by positive rent growth and absorption trends across most sectors. | 51/100 | Neutral | Improving Accelerating |
| Sentiment Investor sentiment has softened as rates have moved higher, although current conditions remain better than many investors anticipated. | 49/100 | Neutral | Deteriorating Accelerating |
Source: CBRE EA, CREFC, Federal Reserve, Green Street, Mortgage Bankers Association, NCREIF, Real Capital Analytics, Real Estate Roundtable, Securities and Exchange Commission, Principal Real Estate. As of October 2026.
Following the jump in U.S. Treasury yields to ~5.3%, the highest level in more than 20-years, there is increasing angst among market participants that there will be renewed headwinds to CRE prices. We have sympathy with this sentiment, and our analysis of unlevered IRRs vs bond yields reflects the potential for downward pressure. Furthermore, the U.S. REIT market, a leading indicator for private real estate, has retraced roughly 9% since its late-July peak as interest rates moved higher. Despite the correction, year-to-date returns remain close to 10%.
However, rates alone can sometimes lead to false negative signals for the private CRE market, and the listed REIT market may overreact (both to the upside and downside) over short time periods. Indeed, in our most recent note titled
We are therefore introducing a proprietary index that measures the health of U.S. CRE based on 15 different data points across five pillars: Capital Markets, Debt & Distress, Transactions & Flows, Fundamentals, and Sentiment. This tool serves as an overall signal that can be picked apart into each of its individual components to understand what is driving each aspect of the market.
Importantly, our health index is highly correlated to future changes in property prices—the R2 of the index relative to the Green Street CPPI on a one-quarter lead is 0.67. Other factors, in isolation, only have correlations closer to 0.2-0.3.
With all that said, the index currently stands on the slightly cautious side of neutral at a score of 46 out of 100. CRE unlevered IRRs look expensive relative to bond yields and REIT total returns are pulling back from higher levels earlier this year. While total transaction volumes are up year-over-year, the growth is driven by increased portfolio- and entity-level sales. Individual property sales drive more of the weight in our index as they track most directly with CRE pricing, and are at levels in line with historical norms, unpacking the story behind headline total transaction volume figures. Debt capital markets are open and liquid, but lending standards are showing signs of tightening, and overall sentiment for CRE is beginning to diminish. Property fundamentals remain steady and improving broadly, but asset selection will be increasingly important as income returns drive this cycle.
Net-net, we expect property values to face modest headwinds, though income returns should more than offset that pressure, potentially resulting in positive total returns. However, this misses an important point. Stronger properties generating higher net operating income growth will continue to benefit from an early cycle environment. Others, however, may face a cycle that never fully materializes. This dispersion in prices existed prior to the rise in rates and it will likely widen even further.
Conclusion:
The U.S. CRE Health Index currently scores U.S. commercial real estate at 46 out of 100, placing the market on the slightly cautious side of neutral. While higher interest rates are creating headwinds for valuations and capital markets remain the weakest component of the index, the broader market is holding up better than rate headlines alone would suggest. Debt markets remain functional, transaction activity is positive, and property fundamentals continue to stabilize and improve.
The more important story, however, is not the direction of headline prices but the growing dispersion beneath them. Recent property value declines have been uneven across sectors and markets, reinforcing our view that this cycle will not unfold uniformly. Some sectors and assets are benefiting from improving fundamentals and stronger NOI growth, while others continue to face structural challenges.
Access the full report for deeper insights into each of the U.S. CRE Health Index factor scores and for more of our thoughts on how the rest of this cycle will play out.
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.
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. Inflation and other economic cycles and conditions are difficult to predict and there Is no guarantee that any inflation mitigation/protection strategy will be successful.
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