The Great Realignment: Mid-2026 U.S. commercial real estate update - by Michael Packman

As we find ourselves past the midpoint of 2026, there continues to be a healthy sense of realism across the commercial real estate market. The frantic price discovery of the early 2020s has given way to a period of strategic realignment. While capital costs remain elevated compared to a few years ago, valuations have largely stabilized, and transaction volumes are picking up — with CBRE reporting a 15% year-over-year increase to $124.5 billion in Q2 2026 alone, driven largely by private buyers and tightening loan spreads.

When we look at our investments we focus on long-term assets geared toward capital preservation, steady cash flow, and modest capital appreciation. With this long-term view, we are less focused day-to-day on macroeconomic noise and more focused on analyzing the underlying operational dynamics of our investments: market vacancy, absorption, and the true strength of our tenants’ businesses. Working closely with our property management and leasing teams, we continue to research opportunities for risk-adjusted growth across core sectors. Here is a summary of our high-level research.

Office Property Forecast
Office occupancy overall is trending toward a slow, deliberate recovery from pandemic-era lows, with hybrid work models now fully entrenched. While utilization remains below historical peaks, we are seeing a steady increase in foot traffic and occupancy, particularly in newer, high-quality spaces. Vacancy rates remain high in older product, but the broader trend suggests a decisive flight to quality and optimized footprints.

Colliers and Cushman & Wakefield report that new office construction remains strictly limited across the U.S., sitting well below pre-pandemic peak levels. Midway through 2026, national vacancy has begun declining year-over-year for consecutive quarters, reflecting tightening supply pipelines. The leading drivers for active office leasing continue to be well-capitalized firms prioritizing modern amenities, prime locations, and high-performance building infrastructure.

Retail and Industrial Property Forecast
The retail and industrial sectors present a compelling picture of resilience, driven by structural demand rather than speculative hype.

• Retail Resilience: Retail has experienced strong investor favor due to steady consumer spending and heavily constrained new inventory, keeping retail vacancies low at roughly 4.4% (Old Republic Title). Suburban open-air and grocery-anchored centers continue to outperform, serving as community hubs while benefiting from population migration patterns. Retailers are adapting footprints to maximize revenue per square foot, focusing on essential goods and services that withstand economic shifts.

• Industrial and Logistics: While massive delivery peaks have leveled off — with CoStar noting that deliveries have fallen to their lowest levels since 2011 — demand remains firmly anchored by the tech and AI boom. Industrial properties with heavy power infrastructure for data centers and flex-industrial spaces remain top targets, particularly across growing submarket clusters in the South and Midwest.

The Debt Market and Interest Rate Environment
The rate volatility that previously paralyzed deal-making has smoothed into a predictable, higher-for-longer reality. Rather than the rate cuts initially priced in by markets earlier in the year, the FOMC has maintained the federal funds rate at a steady 3.5% to 3.75% through mid-year.

Despite this interest rate floor, debt markets have maintained robust liquidity. Commercial real estate originations are continuing an upward trajectory, supported by active non-bank lenders, life insurance companies, and debt funds stepping in to service quality acquisitions. Borrowers are increasingly navigating this environment by utilizing shorter-term structures or conservative leverage to protect yield.

Conclusio
Based on our research, opportunities for long-term investors may be out there, but they require discipline. While many investors shy away from sectors experiencing structural shifts, current pricing can provide favorable entry points for those who dig into the details and understand underlying tenancy.

In previous notes, I have emphasized the importance of evaluating the tenant’s business model, adaptability, and creditworthiness. These dimensions remain crucial when seeking a stable investment, alongside asset-specific factors like power availability, market liquidity, and secular growth alignment. Good, in-depth analysis from the macro level down to the lease details can make specific opportunities apparent, even amidst broader economic uncertainty. As we move through the second half of 2026, proper research and diligence may continue to uncover compelling paths for capital deployment.

Primary Sources:
• CBRE: Q2 2026 U.S. Capital Markets Report & Real Estate Outlook
• Federal Reserve / iShares: FOMC Rate Decisions and Fixed Income Strategy Outlook (July 2026)
• Cushman & Wakefield: Q2 2026 U.S. Office Marketbeat
• CoStar Group / Old Republic Title: CCRSI National Results and Commercial Market Snapshot (Mid-2026)
• Colliers: U.S. Mid-Year Property Market Updates

Michael Packman is founder and CEO of Keystone National Properties (KNPRE), Jericho, N.Y.