Real Estate 2026

In our Introduction to last year’s Global Guide, we noted that the commercial real estate (CRE) markets appeared to be turning a corner, after a period of uncertainty caused by inflation, interest rate increases and value impairment across many asset classes, only to have that nascent sense of optimism dampened at the start of 2025 by concerns that newly announced tariffs could result in trade wars, increased inflation and slower economic growth. Indeed, the global economy faced many challenges in 2025, including the highest tariffs seen in the last century, increased labour shortages caused, in part, by more restrictive immigration policies, and geopolitical tensions in many parts of the world. But despite these challenges, the CRE market showed remarkable resilience.

Last year, global direct CRE investment activity increased by 19% over 2024. In the US, commercial real estate investment volume increased 29% year-over-year in Q4 to USD171.6 billion, pushing full year 2025 volume to USD499.1 billion – 22% above 2024 levels. Fourth quarter CRE investment volume in EMEA rose by 16% over 2024, led by the UK and Germany. Asia Pacific saw 15% year-over-year CRE investment growth in Q4 of 2025. Cross-border investment continued to recover in spite of geopolitical pressures, finishing 2025 with 25% year-over-year growth.

Debt markets improved in 2025, with the US CBRE Lending Momentum Index (which tracks the pace of CBRE-originated commercial loan closings in the US) increasing 67% year-over-year. In most major markets, the overall cost of debt decreased significantly from recent peaks.

Overview

Whether it was the Danish theoretical physicist Niels Bohr or the American baseball player Yogi Berra who said it first, “prediction is difficult, especially about the future”. That said, despite continuing tariff/trade uncertainty and ongoing geopolitical conflicts, at the start of 2026 there was a general sense of optimism for the CRE market, albeit with the acknowledgment that much of the data supporting such optimism was gathered before the conflict with Iran began.

According to Knight Frank’s Active Capital survey, which measures the views and investment sentiments of 119 of the world’s largest CRE investors representing more than USD1.4 trillion of assets under management (AUM), global institutions are set to invest USD144 billion in CRE this year, with approximately 87% of investors (by AUM) reporting that they intend to increase their direct investments in CRE in 2026. In Deloitte’s 2026 Commercial Real Estate Outlook, top markets for CRE investment (excluding each respondent’s home market) include the United States, India and Germany, and 75% of European and Asia-Pacific respondents reported that they expect to increase their CRE investment over the next 18 months, especially into India (86%), Canada (80%) and France (78%). In its 2026 Global Investment Outlook, Hines states that “we believe that 2025 may prove to be the year that real estate quietly bottomed – and 2026 could be the year that capital wakes up to it”, and they forecast opportunities concentrated in living, industrial, retail and certain alternative asset classes, particularly data centres.

JLL sounded a similarly optimistic sentiment at the end of last year, stating that the “outlook for 2026 is positive with most major markets expected to see steady growth, supported by low or falling policy interest rates, low and contained inflation, and increasing fiscal spending”. In the 2026 edition of ULI/PwC’s Emerging Trends in Real Estate (United States and Canada), the 2026 “buy rating” of 3.74 is the highest it has been in the last 20 years. The 2026 edition of Emerging Trends for Europe expresses a more cautionary tone, stating that the “overriding sentiment for European real estate in 2026 is shifting from last year’s cautious optimism to something more pragmatic, with the likelihood of renewed investment activity once again tempered by geopolitical and economic uncertainty”.

The 2026 Emerging Trends Report for Asia Pacific suggests that there is a mood of “cautious optimism” amongst Asia Pacific real estate leaders about the prospects for 2026. However, this optimism is fragile and subject to concerns about geopolitics and cost inflation. Furthermore, sentiment varies widely across the region: positive in Japan and Singapore, but less so in China and Hong Kong. Finally, CBRE predicts that the Asia Pacific CRE market is poised for growth in both investment and leasing activity in 2026.

Sectors

Office

Global office leasing activity rose in the fourth quarter of 2025 on an annual basis for the ninth consecutive quarter, with volumes over the full year increasing to their highest levels since the pandemic. Gateway markets and larger deals drove leasing in North America, and leasing activity also rose in Asia Pacific, whereas longer deal timelines in Europe contributed to a marginal slowing. The global vacancy rate continued to decline after peaking in mid-2025.

Asia continues to lead the recovery in the office sector, with 2025 seeing a 25% year-over-year demand increase. There are, however, significant regional disparities in this recovery. For example, in Japan, New Zealand, Singapore and South Korea, office vacancy was a low 4%, whereas the office vacancy rate in Australia was more than 15%.

In Europe, regulatory constraints, combined with a limited amount of available land, result in a significant supply constraint on the development of new office buildings in many city centres. New office construction starts in Europe have fallen more than 80% from their cyclical peak, and are at the lowest level in over a decade. The impact of working from home in Europe has been less significant than in the US; as in the US, tenants prefer newly constructed Class A, amenity-rich office buildings. CBRE’s prime office rent index for Europe increased by 7% year-over-year, reflecting continued demand for the limited availability of prime office space. Prime office rents grew quarter-over-quarter in 13 of the 32 major European markets tracked by CBRE, with 25 of them recording year-over-year rent growth.

In the Americas, 12 of the 17 major office markets tracked by CBRE had year-over-year increases in prime office asking rents in Q4. However, this recovery is, in many ways, a tale of two markets. Prime office buildings in the US have reported 69 million sq ft of positive net absorption since the first quarter of 2020, compared with negative 155 million sq ft in non-prime US office buildings. The 14% prime office vacancy rate is 6 percentage points below the non-prime average, which is the largest spread between prime and non-prime vacancy rates on record, showing that while there is significant tenant demand for newly constructed Class A, amenity-rich office buildings, office buildings that are older or of lesser quality continue to struggle.

Living

Apollo believes that housing is one of the most powerful, long-term investment themes in global real estate. Consistent with this sentiment, global transaction volume for the living sector in 2025 was USD240 billion – a 24% increase over the prior year. The US continues to be the dominant market in this sector, accounting for two-thirds of this investment, with 31% in EMEA and the remaining approximately 3% in Asia Pacific. Further growth is expected this year on the back of improving debt availability in major markets, including the US and UK.

Fundraising activity targeting living growth markets in Europe and Asia Pacific has also been robust, leading to a rising tide of capital targeting the sector globally. Research by Hines shows that, particularly in developed economies, 80% of households showed momentum for renting rather than buying, evidencing a potential long-term tailwind with respect to for-rent housing.

Retail

Retail fundamentals continue to be resilient across regions. In the US, absorption rose again in the fourth quarter of last year, signalling an ongoing recovery as store opening announcements outpaced closures. Of the four major property sectors, retail was the top performer in the NCREIF index from Q3 2023 through Q3 2025. In Europe and higher-growth or tourism-oriented economies in Asia Pacific, retailer demand continues to be healthy for premium central space, and 50% of high street retail and shopping centres have recorded positive year-over-year rent growth as of Q3 of last year.

Logistics/industrial

Logistics and industrial markets that are closely tied to global trade are being heavily influenced by macroeconomic conditions and trade policies. Unpredictable tariff rates have made it difficult for many tenants to make long-term leasing decisions. That said, in a survey by Deloitte of more than 850 CRE executives in North America, Europe and Asia Pacific, respondents identified logistics and warehousing second, and industrial and manufacturing third, in response to a question regarding which asset classes will present the greatest investment opportunity over the next 12 to 18 months.

In the US, leasing activity in most markets was below pre-pandemic averages as of the end of last year. However, new construction has been limited relative to recent years, with 2025 construction starts down by about 25% from the 2017–2019 average. In addition, because only 15% of US logistics demand is tied directly to global trade, much of the US logistics market is not overly exposed to trade-related disruptions.

In Europe, many countries are committing larger amounts to their industrial sectors to boost their capacity for self defence, which could provide a boost for manufacturing and industrial assets. Industrial construction starts are down 68% from recent peaks, suggesting supply constraints over the next few years that could support rental growth.

In Asia, there has been stabilising industrial tenant demand and a rapid decline in new supply. In much of Asia, vacancy rates peaked in the second quarter of last year and are expected to decline.

Data centres

Although the debut of DeepSeek at the start of 2025 raised concerns about the possibility of reduced data centre demand, a massive, AI-driven leasing and capex spending spree by major tech companies pushed those concerns aside. As the year went on, the demand for data centres reached record levels, driven by the hyperscalers and neocloud providers. The aggregate capital expenditures of the world’s four largest data centre tenants in 2026 are projected to be around USD650 billion – an approximately 60% increase over last year. To put the increasing need for data centres in perspective, Nadeem Meghi, Global Head of Real Estate at Blackstone, notes that more data has been created in the last three years than in all of history combined. JLL predicts that the data centre sector will double in size (GW capacity) over the next five years, and believes that we could see up to USD3 trillion in combined real estate and tenant capex spending by 2030.

The Americas is the largest data centre region, representing about 50% of global capacity. The Americas also has the fastest growth rate of the three global regions, with a projected 17% supply CAGR through to 2030. The US drives most of the activity in the region, accounting for about 90% of capacity in the Americas.

JLL projects that APAC data centre capacity will expand from 32 GW to 57 GW by 2030, achieving a 12% CAGR. JLL also forecasts that colocation will lead growth at 19%, while on-premises capacity will decline by 6% as enterprises continue cloud migration.

JLL’s projected CAGR for EMEA’s data centre market is 10%, fuelled by government support for AI infrastructure and strong demand for sovereign AI clouds to meet data privacy regulations. JLL forecasts that the region will add 13 GW of new supply, with growth concentrated in established European hubs and emerging Middle Eastern markets pursuing digital transformation strategies.

Drilling down further, Green Street believes that Columbus, Dallas, Milan and Paris will experience the largest growth in data centre supply over the next five years.

Power availability and energy regulation pose challenges to the robust growth of data centres. Nuclear energy is expected to gain increasing acceptance as a clean power source, presenting operators with new opportunities to balance stable power access and sustainability requirements. Regulatory requirements in many jurisdictions are expanding beyond infrastructure efficiency to address the entire data centre ecosystem, and new policies are targeting the full resource life cycle, from mandating renewable energy to introducing regulations on water usage. For instance, Germany has a mandatory clean energy mix and Ireland is requiring operators to bring their own power. Certain US states, including New York and Virginia, are also considering legislation that would limit permits for new data centre construction or eliminate tax exemptions historically enjoyed by data centre operators. Power is an area where China may have an advantage: according to the Wall Street Journal, China has the largest power grid in the world and some Chinese data centres pay less than half of what owners of data centres in the US pay for electricity.

Just as the general sense of optimism that prevailed in most commercial real estate markets at the end of 2024 was tempered by the tariff and trade uncertainty that developed in the early part of 2025, as we enter 2026, geopolitical tensions – especially regarding the conflict in the Middle East – have injected new uncertainties into the markets. In February, the World Uncertainty Index (WUI) recorded its highest reading in its three-decade history, well above previous crisis peaks recorded during the September 11 attacks in 2001, the Iraq War in 2003, the 2008 global financial crisis and the COVID-19 pandemic in 2020.

A prolonged conflict with Iran could cause increases in the cost of fuel, transportation and petrochemical-based materials and disruptions in aluminium supply (particularly in Europe and the US), adding additional pressure to projects already strained by tariffs and inflation. Europe and particularly Asia are both more dependent on energy imports from the Persian Gulf than the US: according to the New York Times, Japan imports 57% of its energy from the Gulf, with South Korea at 55%, Italy and France at 22% and 18% as compared to the US at 10%. As a result, countries other than the US may be more vulnerable to short-term supply shocks as well as longer-term increases in energy costs. Furthermore, rising energy prices could increase inflationary pressures, which in turn could cause the US Federal Reserve, the ECB and other central banks to keep interest rates higher for longer.

On the other hand, there are a lot of factors that bode well for CRE this year, and if there is a relatively quick end to the Middle East conflict, the predictions that 2026 will be a strong year for CRE could come to pass.