Cushman & Wakefield Forecasts U.S. CRE Transition to Optimism by 2026 as Growth Catalysts Gain Momentum

The U.S. commercial real estate market demonstrated clear resilience in 2025, setting the stage for potential optimism in 2026. While headwinds persist, distinct sectoral trends suggest a foundation for an inflection point.

Industrial real estate showed remarkable strength in Q3 2025. Net absorption surged 30% YoY to 45.1 million square feet, driven by robust demand in key hubs like Dallas-Ft. Worth, Houston, and Phoenix as corporations consolidate operations into newer, high-capacity facilities. This demand countered moderating rent growth of just 1.7% YoY and held national vacancy rates steady at 7.1%. A significant factor was the substantial 32.5% annual decline in new space deliveries, while build-to-suit projects now make up 39% of the construction pipeline. This balance supported occupancy stability, particularly in small-bay warehouses with a notably low 4.6% vacancy rate. Regional disparities remain a challenge, however, and the reliance on e-commerce and reshoring trends introduces vulnerability to shifts in broader economic sentiment.

Life sciences investment defied global weakness. U.S. R&D capital investment sales soared 63% YoY, a stark contrast to a global venture capital funding dip of 16% to $18 billion. This rebound, concentrated in major U.S. hubs, positions the sector favorably. However, global life sciences vacancy rates climbed significantly to 23.3%, reflecting broader market sluggishness. Challenges persist domestically, including patent expirations, tariff risks, and evolving pricing policies. While AI and regionalized supply chains offer growth avenues, the potential for regulatory or policy shifts impacting profitability remains a notable risk factor for sustained investor confidence.

The office market exhibited a bifurcated recovery. Overall net absorption remained negative at -4.3 million square feet in Q3. Yet, this contrasted sharply with strong positive absorption of +3.0 million square feet in Class A spaces, supported by gains in 46 out of 92 markets, including key cities like Midtown Manhattan and Nashville. Critically, new construction deliveries hit a decade low of 7.1 million square feet for the quarter, with the overall pipeline standing at a manageable 0.4% of total inventory. This subdued supply pressure, coupled with a 14.5% decline in sublease vacancies from their Q1 2024 peaks, has fostered occupancy growth for higher-quality assets. The uneven recovery highlights ongoing demand imbalances, particularly for lower-quality spaces.

These sector-specific dynamics – industrial demand resilience, life sciences investment strength amidst global funding headwinds, and the supply-constrained recovery in Class A offices – collectively suggest a market poised for further improvement in 2026. The reduced new supply across sectors and the shift towards build-to-suit and speculative development aligned with occupier needs provide a stabilizing foundation. While regional variations and policy uncertainties linger as potential frictions, the underlying trends point towards an environment where selective asset classes and locations could see continued appreciation and occupancy gains, provided broader economic conditions remain supportive.

Growth Catalysts and Sector Momentum

The industrial real estate market is demonstrating clear signs of sector momentum, driven by fundamental demand shifts. Q3 2025 saw a 30% surge in net absorption to 45.1 million square feet, fueled by corporate consolidation into modern facilities across key logistics hubs like Dallas-Ft. Worth, Houston, and Phoenix. This demand intensity is reshaping development, with build-to-suit projects now making up 39% of the construction pipeline, a significant structural shift. These projects are stabilizing occupancy, particularly in smaller warehouses with low vacancy rates, even as regional rent growth moderated to 1.7% YoY and overall vacancy held steady at 7.1% due to a sharp 32.5% annual decline in new supply deliveries.

This resilience extends beyond e-commerce into broader macro trends. Supply chain reshoring and onshoring efforts are reinforcing logistics demand, while a notable rebound in life sciences funding – 63% YoY growth in U.S. R&D investment – is creating substitution demand for specialized facilities. Looking forward, monetary policy is poised to act as a potent catalyst. The Federal Reserve is widely expected to cut rates, targeting a range of 3.25%-3.5% by year-end 2026, which should significantly boost investor appetite for high-quality assets as borrowing costs fall and market sentiment improves. This anticipated shift creates a favorable backdrop for well-positioned properties.

However, near-term headwinds remain. The sector faces persistent challenges including ongoing trade tensions impacting global supply chains and localized oversupply in certain industrial markets, factors that could temper immediate price momentum despite the strong fundamentals. While the structural demand drivers and the anticipated easing cycle provide strong long-term logic, investors must monitor how quickly these policy benefits materialize and how regional imbalances evolve. The combination of robust absorption, reshoring tailwinds, and anticipated lower rates suggests the sector is well-positioned for sustained growth, but the pace could be influenced by these near-term frictions.

Asset Quality and Balance Sheet Dynamics

The resilience of the commercial real estate market increasingly hinges on distinctions between asset classes and quality tiers. High-quality assets are demonstrating stronger fundamentals, supported by capital flows and tenant preferences.

Cushman & Wakefield's Q3 2025 U.S. Office MarketBeat report highlights a stabilizing office market with improving demand and subdued new supply. Net absorption remained negative overall at -4.3 million square feet (msf), but Class A office spaces saw positive absorption of +3.0 msf. This demand was driven by 46 of 92 markets, including strong performances in Midtown Manhattan and Nashville.

New construction deliveries hit decade lows at 7.1 msf in Q3, with the pipeline at just 0.4% of total inventory. This constricting supply is supporting occupancy growth in high-quality spaces.

Sublease vacancies have declined 14.5% from their Q1 2024 peaks, further underscoring the improvement in lower-tier office assets.

However, the recovery remains uneven. While top-tier assets outperform, demand for lower-quality spaces has waned, contributing to persistently elevated vacancies in non-Class A properties. This trend is noted in Cushman & Wakefield's 2025 U.S. CRE outlook, which also highlights continuing challenges for non-class A assets.

Capital markets are playing a crucial role in underpinning this resilience. Debt costs remain stable, and investor confidence is strong, enabling investments in high-quality assets. This supportive financing environment is also fostering growth in alternative sectors. Data centers and senior housing are gaining traction, driven by structural demand shifts away from traditional office and retail spaces. According to the same outlook, industrial demand, while subdued in some areas due to trade policy shifts, shows resilience from e-commerce and manufacturing trends.

But the broader challenge lies in the uneven recovery across asset classes and quality tiers. Non-Class A spaces continue to face elevated vacancy rates, and industrial demand is affected by external policy factors.

Risks and Constraints

Despite the growing optimism around commercial real estate fundamentals, several constraints warrant close attention. Trade policy uncertainty remains a near-term headwind, potentially disrupting industrial and logistics flows while increasing operational costs. Cushman & Wakefield's outlook specifically flags ongoing trade tensions alongside oversupply in certain industrial markets as challenges facing 2025, even as long-term demand strengthens. This oversupply pressure, particularly in non-Class A assets, heightens vacancy risks in segments where supply has outpaced demand absorption recently.

Labor shortages and persistent supply chain bottlenecks pose significant operational frictions, especially within the life sciences logistics sector. The critical shortage of specialized personnel and constrained transportation capacity directly threaten efficiency and service levels for high-value, time-sensitive shipments requiring temperature control and regulatory compliance. These headwinds compound the sector's vulnerability to disruptions.

Interest rate volatility, while potentially easing financing costs broadly through anticipated Fed cuts, remains a nuanced risk. Lowering rates to 3.25%-3.5% by year-end 2026 should support prime asset investment, but financing for speculative-grade projects or riskier ventures may still face tighter conditions and higher scrutiny, limiting capital allocation flexibility for less creditworthy entities. Elevated vacancies in non-Class A spaces further underscore the uneven nature of this recovery.

However, strategic adaptations are emerging. Providers are increasingly turning to specialized third-party logistics (3PL) partners to navigate labor constraints and optimize routes, while developers may employ phased financing approaches to manage interest rate exposure and align funding with project milestones, offering some mitigation against these pressures. The sector's ability to adapt these operational and financial levers will be crucial in navigating the near-term constraints while positioning for longer-term growth.