If markets closed 2025 on strong footing, why does investor sentiment feel so uneasy heading into 2026?
U.S. stocks ended 2025 with their third straight double-digit annual gain and the commercial real estate market saw improving (although not overwhelming) transaction velocity, abundant liquidity in the lending markets, and mostly stable risk premiums (aside from two blowouts in April and October). What’s not to like?
With those kinds of numbers, one would expect market analysts to be fully ‘risk on’ heading into the New Year.
Yet we muddled through December with a hard-to-describe angst. To be sure, most equity analysts were calling for more solid stock markets gains in 2026 and most investors’ surveys surrounding the CRE lending markets were upbeat (if not excessively optimistic). But the tone of the market seemed more hesitant than at any time in the previous six months.
For the broader U.S. markets, most of the angst came from the jobs markets. The jobs numbers started to flash red over the summer and none of the prints over the last six months have been terribly comforting. The next jobs report will come out on January 9th – the first timely report since September due to the government shutdown – and will be heavily watched. Expectations are already in place for an anemic number (if the number is sub-anemic, expect another round of analysts calling for a 2026 U.S. jobs-based recession).
Since office attendance is sparse in December, we can’t really call it ‘water cooler talk’ – so perhaps ‘egg nog bowl talk’ (EGBT for short) is the better reference here. The ENBT was decidedly cautious. Among the litany of worries: everything is still to expensive; my recent college graduate can’t find work; why are interest rates still so high?
The middling performances of the major U.S. stock indexes over the second half of December probably added to the glass half empty tone.
On the CRE side, lenders were grateful for solid loan growth in 2025, especially in the CMBS market where issuance levels remained near all-time highs. But here again, ENBT talk often centered around the slow-to-recover multifamily segment (weighed down by oversupply, limited – if any – rent growth, and a bevy of borrowers still dealing with distressed floating rate loans).
As we head into 2026, the uncertainty may linger. A new Fed president will take over soon enough and mid-term election years have historically not been kind to investors. (We won’t even try to factor in the news out of Venezuela over the weekend).
Steady is the New Strong?
We’ll leave off with two notes from Larry Getlen of Commercial Observer.
Mr. Getlen noted in a recent article that retail sales over the holiday season were up slightly. While that doesn’t have anyone popping corks, it is positive news considering all the recent hand-wringing about the U.S. consumer being tapped out.
Even more interesting was his remark, ‘Steady is the New Strong.’ We like the sound of that and so might investors heading into 2026. With all of the concerns over stretched equity valuations, inflation, interest rates, AI euphoria and jobs, it could be that most investors would sign on for ‘steady’ in 2026.
While the broader markets drifted in December, CRE continued to march ahead.
Weekly announced property sales remained elevated even through the last holiday week of the year.
There seemed to be a rash of office sales over the second half of the month. Sadly, those sales often came with the ‘50% Off’ sales price that has accompanied so many of these sales over the last 24 months. The uptick over the last few weeks gave us the feeling that property owners wanted to put these losses behind them before the calendar flipped to 2026.
Capital remained available even for capital-intensive projects like ground-up construction and office-to-residential conversions. If anything, banks, insurance companies, PE firms, and CMBS lenders seem quite confident putting money to work for the moment.
Big Deal Announcements Keep the Market Moving
- Multifamily: A surge in apartment sales made for a nice December for brokers. Leading the way was $455 million portfolio sale in Illinois by Aimco to LaTerra Capital and Respark Residential for over $300K per unit. In Houston — a market where transparency is limited due to non-disclosure laws — Fairstead paid $242 million ($345,000 per unit) for a roughly 700-unit affordable housing property, one of the largest multifamily transactions in the city in December.
- Hotels: A portfolio of Sonesta hotels went for more than $500 million – under $65,000 per key. In Manhattan, the InterContinental New York Times Square traded for $380,000 per key and the Stewart Hotel was acquired for more than $250 million with an eye on converting that property to affordable housing.
- Land: In Spotsylvania, VA, Ares Management acquired 314 acres for what may become another data center.
Incremental CRE Gains in an Uneven Market
We painted a somewhat glum picture of market sentiment in the open, but the reality may be more bifurcated.
Yes, we do worry that valuations may be stretched on the equity side of the ledger and that 2026 may not be as prosperous for investors as 2024 and 2025. The aforementioned headwinds could indeed lead to a middling 2026.
However, on the CRE side, we are more optimistic that “steady” will be the operative word. We do not expect a melt up in either sales transaction velocity or price appreciation, but we do expect modest improvement on both fronts.
We also believe lenders will have a good year. The lending spigots should remain open and lending volume should continue to climb.
Stay tuned.
