June 2026
Macroeconomic Backdrop
The U.S. commercial real estate market continues to demonstrate resilience despite a challenging macroeconomic environment characterized by elevated inflation, higher borrowing costs, and slower economic growth. While capital markets remain constrained by interest rates, most property sectors are showing signs of stabilization as occupier demand gradually improves.
The broader economy remains on stable footing. Employment expanded by 172,000 jobs in May while unemployment held steady at 4.3%, reflecting continued labor market strength. Inflation increased to 4.2%, largely due to higher energy prices, prompting the Federal Reserve to maintain its policy rate. The 10-year Treasury yield climbed to 4.48%, keeping financing costs elevated for commercial real estate investors. First-quarter GDP growth was revised to 1.6%, signaling slower—but still positive—economic expansion.
Sector Performance Overview
Office
The office sector posted its strongest improvement in several years. Annual net absorption turned positive at 16.2 million square feet, reversing last year’s occupancy losses. Vacancy declined slightly to 13.9%, while rents increased 1.4%annually. Class A buildings continue to attract the majority of leasing activity, although Class C properties maintain the lowest vacancy rates. Overall, office fundamentals suggest the sector has entered the early stages of recovery.
Multifamily
Apartment demand remains healthy, although supply continues to outpace absorption. Over the past twelve months, 411,000 units were absorbed while new deliveries exceeded demand, keeping rent growth modest at 0.6%. Vacancy improved slightly to 8.4%, indicating that the market is gradually working through the recent development cycle. Class A properties are stabilizing, while Class C assets continue to produce the strongest rent growth.
Retail
Retail remains one of commercial real estate’s strongest-performing sectors. Annual net absorption reached 12.2 million square feet, while rents increased 1.8%, outperforming every major property type. Vacancy remains exceptionally low at 4.4%, supported by limited new construction and disciplined development. General retail continues to outperform malls and neighborhood centers, reinforcing investor preference for necessity-based retail and grocery-anchored shopping centers.
Industrial
Industrial fundamentals continue to normalize following several years of unprecedented expansion. Annual absorption increased 61% year-over-year to 149.4 million square feet, significantly reducing the imbalance between supply and demand. Although vacancy increased to 7.5% and rent growth moderated to 1.3%, market conditions continue moving toward equilibrium as developers work through elevated inventory levels.
Hospitality
Hotel fundamentals remain stable despite softer business travel. National occupancy averaged 62.6%, while Average Daily Rate reached $162 and Revenue per Available Room increased to $101, both comfortably above pre-pandemic levels. Hotel investment activity improved over the past year, although higher financing costs continue to limit transaction volume.
Key Takeaways
- Commercial real estate transitioning from correction towards stabilization
- Near term activity to remain depressed due to elevated interest rates
- Retail remains the preferred asset class with others experiencing improved fundamentals
- Well positioned, high quality assets will experience higher transaction volume as capital markets gradually normalize
To read the full report please follow link below. Data courtesy of NAR.
Osprey Commercial Real Estate 