February 2026
Macro Environment
The U.S. economy entered 2026 in a slower-growth phase. Job creation weakened significantly following downward revisions to 2025 data, while unemployment held at 4.3%. Inflation cooled to 2.4%, with shelter costs still the primary driver but expected to ease further.
The Federal Reserve paused rate cuts after three reductions in late 2025, but long-term interest rates continued rising (10-year Treasury ~4.21%), keeping borrowing costs elevated and financial conditions tight. GDP growth slowed sharply to 1.4% in Q4 2025, signaling moderating economic momentum.
Capital Markets & Lending
Commercial real estate (CRE) debt reached approximately $3.07 trillion, reflecting gradual stabilization in lending activity.
- Large banks are cautiously re-expanding exposure
- Smaller banks remain the primary drivers of CRE lending growth
- Delinquency rates increased slightly to 1.58%, but remain historically low
Overall, capital availability is improving modestly, though still constrained by higher interest rates.
Sector Performance Overview
Office
The office sector is stabilizing, but conditions remain fragile.
- Vacancy: 14.1% (elevated)
- Rent Growth: 1.0%
- Net Absorption: -2.4M SF (improving trend)
Class A assets are leading leasing activity despite higher vacancy, while Class B shows mixed performance and Class C continues to lose tenants. Concessions remain widespread.
Multifamily
Multifamily remains demand-supported but constrained by excess supply.
- Vacancy: 8.5%
- Rent Growth: 0.2% (cycle low)
- Deliveries continue to outpace absorption
Class A and B assets are under pressure, while Class C shows relatively stronger rent growth. The sector is in a continued “inventory digestion” phase.
Retail
Retail fundamentals are softening but still outperform other sectors in key areas.
- Vacancy: 4.3% (lowest among sectors)
- Rent Growth: 1.9% (highest among sectors)
- Net Absorption: -3.8M SF
General retail remains the most resilient, while neighborhood centers and malls are seeing the largest pullbacks. The sector continues adjusting to e-commerce and post-pandemic shifts.
Industrial
Industrial is normalizing after peak performance in prior years.
- Vacancy: 7.5%
- Rent Growth: 1.3%
- Net Absorption: 111.5M SF (down 42% YoY)
Supply continues to exceed demand, but the imbalance is narrowing. Logistics properties remain the primary demand driver, while flex space lags.
Hospitality
Hospitality performance is stable with improving revenue metrics.
- Occupancy: ~62% (below pre-pandemic levels)
- ADR: $160 (+22% vs. 2020)
- RevPAR: $100 (+16% vs. 2020)
Corporate travel and remote work continue to weigh on occupancy, but strong pricing supports profitability. Investment activity remains tempered by borrowing costs.
Key Takeaways
Office remains the most challenged sector, though improving at the margin
CRE markets are stabilizing but not yet fully recovered
Higher interest rates continue to constrain investment and development
Supply overhang is a key theme in multifamily and industrial
Retail shows resilience, particularly in vacancy and rent growth
To see the entire report click link below.
Osprey Commercial Real Estate 