**Putting Capital Markets Under the 2026 Microscope**
As commercial real estate (CRE) steps into 2026, questions loom over whether there’s enough debt and equity available to support ongoing activity. The answer, according to experts, remains a mixed bag.
### Returning Interest and Renewed Stability
Tricia Peterson, Managing Partner and COO at the Accord Group, notes a more optimistic investor sentiment. “Investors we’re speaking with are more encouraged about real estate’s prospects than they have been in recent years,” she said.
Robert Durand, Executive Vice President of Finance at KBS, counters that while confidence is improving, risks still persist. “The labor market has shown some signs of softening,” Durand says. “Surprises in inflation or employment could reset expectations and slow momentum.”
### 2025 in Review: A Year of Selective Recovery
Capital markets in 2025 exhibited signs of stabilization, though not across the board. Debt funds were active early in the year, and regional as well as money center banks re-entered the market. Katherine Bissett, partner at Cox, Castle & Nicholson, described the environment as one of cautious activity.
David Pittman, Head of Capital Markets at Bonaventure, and Ran Eliasaf, Founder and Managing Partner at Northwind Group, observed increased institutional engagement. “Investors are gradually re-engaging with real estate after a period of extreme caution,” Pittman commented.
Colliers’ Steig Seaward noted that 2025 marked “a clear turning point in overall market conditions and sentiment.” Still, investment remained selective. Eliasaf emphasized increased confidence but a continued risk-averse attitude outside multifamily and industrial assets, where competition surged.
Peterson highlighted another struggle—capital fund investors faced limited availability. “Many investors hesitated to commit to new programs or strategies due to smaller distributions from current portfolios and uncertainty around future returns,” she explained.
### The Role of Interest Rates
In 2025, the Federal Reserve cut the Effective Federal Funds Rate (EFFR) three times, settling at a range of 3.5% to 3.75%. While welcome, these rate cuts didn’t fully meet market expectations.
“Some investors returned, but transaction volume didn’t increase as many had hoped,” Durand said. Steven Buchwald, Senior Managing Director at Institutional Property Advisors, added that market volatility heavily influenced short-term rates. Seaward noted that floating-rate borrowers benefited most.
According to David Frosh, CEO of Fidelity Bancorp Funding, inflation remains a wildcard. “Inflation persists and could reverse Fed policy,” he warned.
On pricing, Greysteel’s Ralph Rader remarked that no one expects a return to zero interest, but normalization is occurring: “The cost of capital finally allows for positive leverage.”
Still, Eltorai of Altus Group warned investors not to over-focus on rate movements alone. “Persistent inflation, a growth scare, or surprise events could push yields in either direction,” he noted. Peterson added that economic and political factors might play a greater role than interest rates in 2026.
### Narrowing the Bid-Ask Gap
Since late 2023, sellers have mostly sought prices above buyer expectations. “Distressed sellers have become more realistic, and buyers are gaining confidence in underwriting future rates,” said Frosh.
Rader noted that 2026 may bring a narrowing of the bid-ask gap. “Sellers have finally accepted that 2021 valuations are the exception, not the rule,” he said. Loan maturities are pushing more assets to market, forcing institutions to adjust their expectations.
Still, Eliasaf cautioned that assets exposed to political or regulatory uncertainty may continue to experience wider pricing gaps.
### 2026 Investment Strategies
The new year’s investment approach is bifurcated. “Investors are leaning into a barbell approach that favors both the safest and the most opportunistic deals,” Frosh commented.
Buchwald foresees capital moving toward value-add and opportunistic investments, particularly for assets acquired below replacement cost. Durand agreed, pointing to sectors like office and logistics where slower rent growth has opened up opportunity.
However, Rader emphasized the growing preference for stabilized assets offering positive cash-on-cash yields, noting that “predictability is the highest-valued commodity in this shifting market.”
### Risks on the Horizon
Experts emphasized that despite improvements, risk remains pervasive in the 2026 capital markets landscape. Chief among them is uncertainty.
“In geopolitical conflict, war, health crises, or natural disasters, investor confidence could be undermined,” Seaward said. Other key risks include:
– **Economic risk:** Pittman warned of a potential slowdown, especially if unemployment rises. Seaward added that a resurgent inflation or recession could further stress liquidity.
– **Geopolitical tensions:** Durand cited continued instability in Ukraine, the Middle East, and Latin America, alongside ongoing trade disputes and tariffs.
– **Debt maturities:** Frosh predicted significant pressure from loans maturing in a higher-rate environment.
– **Policy volatility:** Altus Group’s Eltorai noted that murky policy positions, especially following a volatile 2025, could cause more market noise in 2026.
– **Political uncertainty:** Frosh warned that midterm elections could generate market turbulence. Eltorai added that possible legislative changes at national or local levels could further unsettle investors.
– **Operational costs:** Bissett highlighted increased insurance and property-related expenses as ongoing stressors, potentially mitigating the benefits of modest rate cuts.
Despite these risks, Durand offered a hopeful note: “Investors are less reactive than they were a year ago. Capital wants to get put to work. The market is learning to operate through uncertainty rather than wait for it to clear.”
### Guidance for 2026 Investors
Experts emphasized that adaptability, discipline, and data-driven strategies are imperative in 2026.
Frosh advised investors to focus on liquidity planning, rigorous underwriting, and refined data usage. Rader emphasized analyzing opportunities on merit and understanding the asset’s basis. Eliasaf concurred, stating that structure and execution outweigh headline assumptions.
Durand recommended avoiding one-size-fits-all strategies—instead, recognize market nuances, explore overlooked opportunities, and align with experienced operators.
Eltorai urged diversification of data sources, especially in light of possible federal government shutdowns that could disrupt information flow.
The overall message? Those who act early and with discipline, agility, and preparation stand a better chance of navigating the evolving and uncertain 2026 real estate capital markets successfully. As Frosh concluded, “The coming year will reward prepared, patient, and brave capital—often in that order.”
