September 2026
Summary
Economic conditions were broadly steady, but hiring cooled materially. Nonfarm payrolls declined by 23,000 in July while unemployment edged down to 4.1%. Commercial real estate remains constrained by elevated long-term rates, yet property fundamentals show increasing signs of stabilization. CRE loan delinquencies held at 1.58% in Q1 2026 – a 10-year high, but still well below financial-crisis levels.
Sector Performance Overview
Office
The office market continued its gradual stabilization, with 11.3 million SF of positive net absorption over the past 12 months. Demand remains concentrated in Class A properties, while Class B and C continue to experience tenant losses. Overall vacancy remains elevated at 13.9%, rent growth is modest at 1.7%, and cap rates average 8.8%, reflecting continued investor caution.
Multifamily
Multifamily fundamentals continued to improve as demand remained strong and new supply slowed. Annual absorption reached 472,200 units, exceeding deliveries for the first time in nearly five years helping vacancy decline to 8.0%. Rent growth improved to 1.1%, while cap rates averaged 6.2%, suggesting the sector is gradually working through the recent wave of excess supply.
Retail
Retail remains one of the tighter commercial real estate sectors,w its vacancy holding at 4.3% despite continued new construction. Annual net absorption improved to 25 million SF, led by general retail, while neighborhood centers returned to positive absorption. Rent growth was 1.8% overall, with neighborhood and power centers posting stronger gains, and cap rates averaged 7.4%.
Industrial
Industrial fundamentals continued to rebalance as demand strengthened and the gap between new supply and absorption narrowed considerably. Annual absorption more than doubled year over year to 184.4 million SF, helping vacancy stabilize at 7.5%. Logistics remains the primary demand driver, while flex space continues to lag. Rent growth remained subdued at 1.3%, with cap rates averaging 7.4%.
Hospitality
Hotel performance remained relatively stable, with 62.8% occupancy, an average daily rate of $164, and RevPAR of $103. Although occupancy remains below pre-pandemic levels, ADR and RevPAR continue to exceed 2019 levels. Investment activity also improved, with trailing 12-month transaction volume increasing to $27.9 billion, although elevated borrowing costs continue to restrain deal activity.
Key Takeaways
- The cost of capital continues to limit refinancing and transaction activity
- Multifamily is finally moving toward balance
- Nationwide retail reaches 57.2 Million square feet under construction
- Office demand continues to be heavily concentrated in Class A prompting a flight to quality product
- CRE Debt stands at $3.12 Trillion as of July 2026
To read the full report please follow link below. Data courtesy of NAR.
