The CRE recovery is becoming a two-speed market
Commercial real estate is showing clearer signs of stabilization, but investors should be careful about describing the current environment as a broad-based recovery.
The stronger conclusion is that the market is splitting by deal size, property type, and access to capital.
A new report from the CREDA Research Foundation found that transaction volume increased across office, industrial, and retail properties during the first half of 2026 compared with the same period last year. Industrial posted the strongest growth, with volume rising by nearly 50%. Multifamily transaction volume, however, declined slightly.
At the same time, commercial lending outside multifamily nearly stalled in the first quarter. Net lending to non-multifamily commercial properties fell to $3.3 billion, compared with $17.9 billion in the fourth quarter of 2025, as securitized loan paydowns outpaced new issuance.
That combination—more transaction activity but constrained credit—helps explain why the recovery feels stronger in some parts of the market than others.
What happened in the first half of 2026
The CREDA report points to several positive signals:
- Transaction activity increased across several major property sectors.
- Industrial transaction volume grew by nearly 50% year over year.
- REIT purchases increased by $6.8 billion, or 76.6%.
- Distress for non-investment-grade commercial properties fell to 1.4%, the lowest level since June 2022.
- Multifamily net lending increased 15.8% year over year in the first quarter.
Newmark’s second-quarter capital-markets report tells a similar story at the headline level. U.S. CRE transaction volume reached $293 billion in the first half of 2026, up 31% from the same period in 2025. Loan and debt origination volume rose 25% year to date, with bank originations up 45% and debt-fund originations up 54%.
But the details matter. Capital is not flowing evenly to every property or borrower. Credit remains available, yet lenders are demanding stronger cash flow, more equity, better sponsorship, and clearer exit assumptions.
For passive investors, that distinction is important. A market with available capital is not necessarily a market with easy capital.
Smaller assets are benefiting from a different buyer pool
Recent market data also suggests that property size is becoming a major dividing line.
CoStar’s value-weighted index, which is more heavily influenced by larger institutional transactions, declined 1.3% in August and remained 19.4% below its July 2022 peak. By contrast, CoStar’s equal-weighted index, which better reflects smaller properties, increased 1.4% during the month and was only 0.5% below its record level.
That is a meaningful divergence.
Smaller properties are often purchased by private investors, regional operators, and smaller funds that may use less leverage or have more flexibility in structuring transactions. Large institutional assets typically require deeper debt markets, larger equity checks, and more confidence in long-term exit pricing.
Higher borrowing costs therefore affect the two segments differently.
A buyer acquiring a smaller apartment building, neighborhood retail center, or light-industrial property may be able to close with a combination of local-bank debt, private capital, and substantial equity. A large institutional acquisition may need a broader financing market and more aggressive assumptions to meet return targets.
This helps explain why smaller assets can approach prior valuation levels while larger properties remain marked down.
Industrial remains the clearest bright spot—but supply still matters
Industrial has been one of the strongest areas of the recovery. CREDA reported nearly 50% growth in industrial transaction volume during the first half of 2026, while Newmark also identified industrial as one of the leading sectors for transaction growth.
The demand story remains supported by logistics, manufacturing, reshoring, and supply-chain investment. Industrial properties also tend to offer more functional flexibility than many older office buildings, which can make them easier for lenders and buyers to underwrite.
However, investors should not treat industrial as uniformly low risk.
CREDA noted that the industrial construction pipeline continued to rebound and reached its highest share of inventory since the end of 2024. New supply can eventually pressure rents, occupancy, and tenant concessions—especially in markets where developers delivered large volumes of speculative space.
The most durable industrial opportunities may therefore be properties with:
- Strong infill locations near population centers and transportation infrastructure.
- Smaller or mid-sized bay configurations that serve a broad tenant base.
- Limited near-term competing supply.
- Leases with manageable rollover exposure.
- Tenants whose demand is tied to recurring distribution or manufacturing activity rather than short-lived space needs.
Industrial fundamentals remain favorable, but asset-level selection matters more as construction resumes.
Multifamily lending is improving, but that does not eliminate risk
Multifamily was one of the few sectors where lending growth was clearly positive. CREDA reported that net multifamily lending increased 15.8% year over year in the first quarter.
That improvement is significant because multifamily borrowers faced a difficult combination of higher interest rates, elevated insurance costs, slower rent growth, and large amounts of maturing debt.
Still, stronger lending does not mean every apartment investment is attractive. Multifamily transaction volume declined slightly in the first half, according to CREDA, suggesting that financing availability has not fully overcome valuation and operating challenges.
Passive investors should pay particular attention to the difference between nominal rent growth and effective property-level cash-flow growth. Concessions, elevated turnover, payroll costs, insurance premiums, and property taxes can absorb much of the benefit from higher asking rents.
The best-positioned apartment investments are likely to be those with conservative leverage, realistic renewal assumptions, and enough operating margin to withstand slower rent growth.
Higher rates are the next test
The first half of 2026 benefited from improving transaction sentiment and greater willingness among buyers and lenders to engage. The second half faces a more difficult rate environment.
CREDA said the Federal Reserve’s September rate increase and rising interest rates since the end of the second quarter are expected to weigh on transactions and lending during the second half of the year.
For owners with floating-rate debt, the immediate issue is debt service. For owners approaching maturity, the larger concern is refinancing proceeds. Even if a property’s income remains stable, a higher interest rate or more conservative loan-to-value ratio can create an equity shortfall.
For buyers, higher rates raise the required going-in yield and reduce the price they can justify. Unless sellers accept lower valuations, the result may be fewer transactions rather than a sudden wave of distressed sales.
What passive investors should watch next
The most useful indicators over the next several quarters will be:
- Net lending outside multifamily. A recovery in property sales without broader credit expansion would suggest that activity is concentrated in well-capitalized buyers and high-quality assets.
- Industrial deliveries and lease-up performance. New supply will determine whether strong demand translates into sustained rent growth.
- Refinancing activity. Modifications, extensions, and equity injections can reveal stress before it appears in foreclosure statistics.
- Deal size and buyer composition. Continued strength in smaller transactions alongside weak institutional pricing would confirm that the market is increasingly segmented.
- Debt pricing after the September rate increase. Even modest changes in borrowing costs can materially affect leveraged real estate returns.
The investor takeaway
The current CRE market is neither a clean recovery nor a broad downturn. It is a selective reopening of the market, led by industrial assets, smaller transactions, REIT buying, and properties with defensible cash flow.
For passive investors, the lesson is to evaluate each opportunity through both an operating lens and a capital-markets lens. A property can have solid occupancy and still produce disappointing returns if refinancing costs rise or exit liquidity weakens.
The most resilient investments are likely to be those that do not require perfect conditions: moderate leverage, durable tenant demand, manageable capital needs, and enough cash-flow cushion to absorb a slower recovery.
In this cycle, access to capital is becoming part of the real estate thesis—not merely a financing detail.
