2026 Mid-Year Update: Inside Real Estate Outlook - Resilient Recovery

Amid geopolitical volatility and shifting macro crosscurrents, the CRE recovery is intact - but uneven, with wider dispersion than headlines reveal. This creates a market that is ripe for alpha discovery through careful property, market, and fund selection.

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.

Access the full year 2026 Annual Outlook below.

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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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MM13826-04 | 06/2026 | 5553372–012027