Real Estate Trends to Watch
SIX
Office demand continues to recover
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FOR
2026
UNITED STATES
OVERVIEW VIDEO
Tariffs redefine industrial demand
02
K-shaped consumer spending reshapes retail
03
Early innings of capital markets recovery persist cautiously
04
Measured optimism is warranted for the AI industry
05
Tailwinds for multifamily demand win out in 2026
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Office demand continues to recover.
2025 showed surprising resilience—office leasing improved, companies continued to increase in-office expectations for employees, Class A absorption turned positive, and all of this occurred even as overall job growth remained soft.
Vacant available sublease inventory has declined 20% since the beginning of 2024 and now matches its lowest point in three years. Even in a low job growth environment, companies are more confident in their future space needs, pulling sublease space off the market. Sublease inventory typically peaks shortly before overall vacancy, so it is an important bellwether of the entire office market. Vacancy is still increasing, but by smaller and smaller amounts; watch for it to peak in the next few quarters.
Class A Tenant Demand Rising, Especially in Gateway Markets
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Source: Cushman & Wakefield Research *First three quarters of each year
Source: Cushman & Wakefield Research
While many organizations looked to downsize in the immediate aftermath of the pandemic, the average office lease size has increased by 14% over the past two years. Tenants have been more decisive in their workplace commitments.
With a construction pipeline under a third of the historical norm, new supply will remain constrained, pushing tenant demand down the quality spectrum. Office conversion activity—impacting over 4% of CBD inventory in the past three years—endures into 2026, creating needed vitality in and around office-saturated downtowns while adding residential units in urban cores. With 85% of tenants wanting landlord support—half of whom are willing to pay for it—expect more landlord-tenant partnership on services and community-driven experiences fostering relationships, culture, and employee well-being.
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Tariffs redefine industrial demand.
Coming into 2025, an acceleration in industrial demand was expected. Early in the year, tariff announcements and trade uncertainty briefly dampened activity, but a stronger-than-anticipated second half of 2025 reversed the dip, bringing total absorption to 177 msf—just below 2024’s forecast.
Demand has softened amid the tariff environment, but supply-side risks in the industrial sector have eased considerably. The U.S. construction pipeline is down 7% year-over-year and has fallen 63% from its 2022 peak of 718 msf. Today’s pipeline represents 1.5% of total inventory which is right in line with the long-term historical average of 1.3%. Only six markets, all smaller in scale, have pipelines exceeding 5% of local inventory.
Annual Industrial Net Absorption Forecast
Larger leases replacing pandemic-era footprints as tenants consolidate into more efficient spaces with substantial power to support automation. The trajectory of goods spending vs. services spending. In 2025, households shifted back toward services spending, but as tariff effects normalize and real incomes grow, we may see goods spending accelerate in 2026, which supports industrial absorption. The outcomes of negotiations between the U.S. and China, as well as the upcoming joint review process of the U.S.M.C.A. in July 2026, will play pivotal roles in future industrial demand.
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Newer space is king: Industrial buildings built since 2020 have registered 196 msf of net occupancy growth in 2025, while older, less functional facilities recorded 88 msf of negative absorption during the same period.
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K-shaped consumer spending reshapes retail.
In 2025, high-income consumers fueled growth in luxury and discretionary retail, supported by a strong equity market-fueled wealth effect. Meanwhile, rising delinquency rates signaled strain at the lower end.
In 2025, the top 10% of U.S. households held 67% of the nation’s household wealth and benefited disproportionately from the surging stock market. The resulting wealth effect helped sustain consumer spending throughout the year, with estimates suggesting roughly 5% of incremental wealth is spent. High-income households capturing these gains are driving spending on luxury goods, travel, entertainment, and other discretionary categories, supporting strong occupancy and rent growth along urban high streets and in high-end retail centers.
Household Wealth Rising, but so Is Credit Card Debt
Source: Federal Reserve, Moody's Analytics
The share of credit card balances in severe delinquency (90+ days) is 12.4%, the highest in 14 years, implying that an elevated number of households are under financial duress. Retailers are increasingly reliant on affluent households to drive sales.
The stock market. The wealth effect will continue to support spending as asset prices rise, but a market selloff could have downside consequences. Retailer earnings reports will be crucial to gauge the health of the consumer over the holiday shopping period amid the ongoing impacts of tariffs. High frequency data on foot traffic, air travel, and consumer confidence can help identify shifting consumer behavior amid macro uncertainty. Store opening and closure announcements are approximately net neutral, signaling that retail occupancy should remain high in the near term.
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Early innings of capital markets recovery persist cautiously.
The capital markets recovery is underway, with volumes climbing and participation broadening. The path forward is shaped by higher-for-longer interest rates and marginally neutral-to-positive leverage conditions, suggesting a gradual improvement rather than a rapid rebound ahead.
CRE sales were up 15% YOY in the first three quarters of 2025 as the recovery that began with easing monetary policy continued to gain traction. What started with core sectors has broadened into a clear sector rotation, with investors now extending into more opportunistic plays such as office and retail. Office sales have surged 52% from their trough and stand 25% higher YOY. Retail volumes remain resilient, just 10% under pre-hike
Capital Markets Recovery Gains Momentum Across Sectors
Source: MSCI Real Capital Analytics; data labels reflect Y/Y percentage change in (Q1 – Q3) YTD volumes.
Source: MSCI Real Capital Analytics
Year-to-date capital raised October 2025 was up 30% YOY, and it wasn't just more capital, but more players entering the market. The number of funds securing those capital commitments has surged 44% above the 2023 low, reflecting a broader mix of managers, strategies, and opportunities attracting fresh allocation. This wave of capital formation reflects strong confidence in the sector’s long-term value, as investors look beyond near-term volatility.
Fundraising momentum and slowly easing base rates offer recovery tailwinds. Historically tight credit spreads may still widen, and rates won’t return to zero. Keep expectations measured as higher-for-longer rates and tighter-return hurdles challenge underwriting. Ultimately, further recovery depends on fresh capital accepting narrow cap rate spreads versus risk-free benchmarks, pushing investors further out along the risk curve amid lingering uncertainty.
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CRE sales were up 15% YOY in the first three quarters of 2025 as the recovery that began with easing monetary policy continued to gain traction. What started with core sectors has broadened into a clear sector rotation, with investors now extending into more opportunistic plays such as office and retail. Office sales have surged 52% from their trough and stand 25% higher YOY. Retail volumes remain resilient, just 10% under pre-hike norms, reinforcing confidence in consumer-driven assets. This broadening reflects a shift from defensive positioning toward selective risk-taking, as improving fundamentals and fundraising point to a new cycle of capital deployment ahead.
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Measured optimism is warranted for the AI industry.
The AI landscape presents two simultaneous realities: On the one hand, GenAI is a transformative force that’s driving deep investment in infrastructure. On the other hand, there is considerable market enthusiasm without clear paths to profitability (yet).
Capital expenditures from Alphabet, Amazon, Microsoft, and Meta have scaled up from $156B in 2022 to $383B in 2025. Current forecasts expect another $641B in 2027, bringing the three-year total to more than $1.5T from just four companies. The sector’s investment extends beyond the core components of AI—compute, storage, networking, and software—and into traditional infrastructure such as power generation, transmission, gas pipelines, water systems, and fiber networks.
AI Capital Investment Ramping Up Quickly
Source: Wall Street Journal, Morgan Stanley research estimates, company data
Operational data center capacity within the Americas region is expected to increase by nearly 50% over the next 3-5 years and 91% within the next 10. This surge in capacity is primarily driven by heightened demand for AI and neocloud workloads in the U.S.
Graphic Processing Unit (GPU) utilization rates as a leading indicator of whether AI infrastructure investments are creating real demand or signaling potential overcapacity. Balance between AI-related revenue growth and capital expenditures to avoid unsupported infrastructure spending. Changes in the regulatory environment surrounding AI and its related infrastructure could become an obstacle of sustained growth in the sector. A sharp decline in venture capital funding for AI startups, revised hyperscale CapEx plans, or layoffs in the broader industry would signal cooling and potential upcoming correction.
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Tailwinds for multifamily demand win out in 2026.
Although multifamily faces clear headwinds, demographics remain largely favorable, real incomes are up, and for-sale affordability is at all-time lows. These dynamics are largely consistent with 2025, a year during which net demand exceeded 355,000 units—the third best year for apartment demand since 2000.
Affordability constraints in the for-sale housing market continue to challenge younger would-be homebuyers. The blended homeownership rate for households under age 44 stands at 48%, down 223 basis points from its post-pandemic peak in 2022. This affordability-driven pullback, combined with largely flat apartment rents, will continue to generate new renter households in 2026.
Fewer Young Adults Are Becoming Homeowners
Source: U.S. Census Bureau, Cushman & Wakefield Research
Source: U.S. Census Bureau, Moody’s Analytics, Cushman & Wakefield Research
More young adults (18-34 year olds) are living alone than living with roommates according to the U.S. Census Bureau. Since 2015, the number of 18-34-year-olds living alone has grown by 40%, while those living with non-relatives (roommates) has shrunk by 17%. This secular trend has generated significant renter household formation over the past few years.
The U.S. multifamily market is set up well for recovery. Demand remained robust in 2025, and new supply is set to decline by roughly 50% in 2026, with further easing into 2027. Beyond the current homeownership rate for young adults, construction starts bear watching. As the rate hike cycle progressed, new construction starts ground to a halt. However, new multifamily construction loan origination points to a potential resurgence. As capital looks for yield, it’s only a matter of time until equity finds its way to multifamily developers.
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