March 2026
Macroeconomic Backdrop
Economic growth decelerated in Q4 2025, with GDP rising just 0.7% annualized, down from 4.4% in the prior quarter. Labor market conditions softened, with a net loss of 92,000 jobs in February and unemployment rising to 4.4%. Inflation held steady at 2.4%, though shelter costs remain the primary driver.
The Federal Reserve maintained its policy rate at 3.5%–3.75% following late-2025 cuts, while the 10-year Treasury hovered above 4%, keeping borrowing costs elevated and limiting transaction activity.
Capital Markets & Lending
- CRE debt increased modestly to $3.08 trillion, signaling gradual stabilization.
- Lending growth is being driven primarily by smaller banks, while large banks have begun to cautiously re-expand exposure.
- Delinquency rates rose to 1.58%, still historically low but trending upward.
Sector Performance Overview
Office
The office sector is stabilizing but remains fragile. Vacancy remains elevated at 14.0%, with negative absorption (-2.5M SF) improving from prior lows. Demand is increasingly concentrated in Class A assets, while Class B and C continue to face tenant losses. Rent growth remains muted at 1.1%, with concessions widespread.
Multifamily
Multifamily fundamentals are pressured by excess supply. Vacancy rose to 8.6%, while rent growth slowed to 0.1%. Although demand remains above long-term norms, deliveries continue to outpace absorption, prolonging imbalance. Performance is uneven, with Class C assets outperforming higher tiers.
Retail
Retail remains the strongest-performing sector. Vacancy is low at 4.4%, and rent growth leads all asset classes at 2.0%. General retail is the most resilient segment, though overall demand is slightly negative and new supply is beginning to apply pressure.
Industrial
Industrial is in a normalization phase following peak conditions. Vacancy increased to 7.6%, with demand slowing and supply still exceeding absorption. Rent growth moderated to 1.3%, with logistics assets continuing to drive demand while flex space underperforms.
Hospitality
Hospitality performance remains stable but uneven. Occupancy stands at 62.2%, below pre-pandemic levels, reflecting reduced business travel. However, ADR and RevPAR exceed 2019 benchmarks, supporting profitability. Investment activity remains subdued due to high financing costs.
Key Takeaways
- Tight capital markets remain the primary constraint across all sectors.
- Retail leads, while office and multifamily lag due to structural and supply pressures.
- Industrial is stabilizing, though not yet fully rebalanced.
- Economic softness and elevated rates continue to delay recovery and transaction volume.
- Market performance is increasingly bifurcated by asset quality, geography, and sector fundamentals.
To read the full report please follow link below. Data courtesy of NAR.
Osprey Commercial Real Estate 