As we closed out Q4 2025, one theme stood out across the national real estate and construction markets: resilience.
Over the past four years, our industry has navigated inflation, rising interest rates, tariffs and evolving tax policy. Heading into 2026, uncertainty remains of course, particularly around the looming debt maturity wall in 2026 and 2027, but capital is moving, transactions are up in several sectors and legislative developments continue to shape strategy.
Below is a practical overview of what we’re seeing, and what it means for business owners and operators in the real estate and construction market.
The office market continues its gradual recovery. After multiple false starts since the pandemic, net absorption turned positive again in the second half of 2025. While demand remains below pre-2020 levels, recent data suggests more durable improvement.
Three- and four-star buildings (commodity, investment-grade assets) returned to positive absorption. Trophy assets remain strong, although availability is tight. Lower-quality one- and two-star buildings continue to struggle.
Importantly, tenants are prioritizing location over building age. Centrally located, well-amenitized suburban submarkets are outperforming. With limited new trophy product available, users are increasingly considering older assets in strong locations.
Construction starts as a share of inventory remain at historic lows. At the same time, demolitions have reduced overall inventory. Vacancy is expected to peak around mid-2025 and stabilize near 14% in 2026 before gradually improving.
Limited speculative construction is one of the clearest positives in the office outlook.
Office transaction volume increased nearly $10 billion year over year, with sales up more than 20%. This is the strongest percentage gain among property types.
Institutional investors are returning, albeit cautiously. Private buyers and occupiers have stepped in to fill gaps, taking advantage of pricing resets and more stable borrowing costs. The 10-year Treasury yield declined from above 4.5% at the start of 2025 to approximately 4.1% by Q4, helping unlock transactions. Office still trails retail and industrial in overall capital preference, but it is no longer frozen.
Retail enters 2026 on steadier footing. After a wave of bankruptcy-driven store closures in 2025, demand has stabilized. Net absorption has been positive for three consecutive quarters, and space is leasing quickly.
We continue to operate in a persistently supply-constrained retail environment. High-quality space remains scarce, with roughly 40% of available retail space rated as two-star or below, and less than a quarter of it was built this century.
Construction starts remain at historic lows due to elevated financing costs, rising cap rates, tariffs and development economics. Rising operating expenses and capital expectations continue to outpace achievable rents.
Rent spreads remain near multi-decade highs. In practical terms, if a 10-year lease expired today, rents could increase approximately 33% to reach current market levels.
Although rent growth is expected to moderate in the near term as backfilled bankruptcy space is absorbed, the long-term supply constraint supports continued stability.
Retail sales volume increased 14% in 2025, reaching $73 billion — the second consecutive year of growth. Buyers and sellers are aligning on pricing as the bid-ask spread narrows. Retail’s combination of limited supply and strong rent spreads has restored investor interest.
Industrial remains fundamentally solid, but momentum has cooled.
Imports were front-loaded in early 2025 ahead of tariff concerns but have since declined. With fewer goods moving through the supply chain, logistics demand growth has hovered below 1%. At the same time, speculative construction remains elevated relative to historical norms. Approximately 55% of space underway remains available for lease, roughly double pre-pandemic levels. This imbalance is pushing availability higher.
Availability hovers just under 12%, and vacancy is projected to rise toward 8% in 2026 before stabilizing as supply and demand rebalance.
For newer logistics properties built since 2020, years of available supply have increased. Depending on building size, it could take 2.5 to more than three years to absorb existing available inventory if no additional supply were delivered.
Industrial sales volume rose 11% in 2025, surpassing $80 billion. This is the strongest year on record outside the 2021–2022 surge.
Institutional buyers accounted for roughly 45% of transactions above $50 million. Owner-user purchases have also increased as borrowing conditions stabilize and pricing adjusts.
Multifamily is transitioning from a record supply cycle into a more normalized environment.
Absorption normalized in late 2025 after record highs in 2024 and early 2025. Employment growth, a primary driver of apartment demand, is projected at just 0.1% in 2026. Demographic tailwinds are also fading. Growth in the primary renter cohort (ages 20–44) is slowing significantly, with declines already visible in the 30–34 age range. Population growth overall is moderating. These factors are tempering demand.
Deliveries peaked in 2024 at the highest level since the mid-1980s. Supply growth declined 25% last year, and construction starts have fallen sharply.
Units underway are down 51% from the 2023 peak.
While deliveries are expected to slightly outpace demand in the near term, the construction slowdown should support tighter conditions longer term.
Vacancy remains structurally higher than pre-2020 levels, and stabilized properties are taking longer to lease. Class B and C properties are facing more pressure amid economic headwinds.
Multifamily transaction volume increased 27% in 2025. Private buyers accounted for more than half of acquisitions, often pursuing value-add and opportunistic strategies. Institutional investors remain selective, favoring cash-flowing assets in supply-constrained submarkets.
On the legislative front, 2025 delivered significant real estate wins through the One Big Beautiful Bill Act (OBBBA), including:
However, 2026 begins with other complexities, including:
Below are just a few of the tax and regulatory items particularly relevant to REITs and real estate owners.
Treasury officials have indicated openness to allowing suspension of prior irrevocable elections related to interest deductibility. Guidance could emerge in the coming months, which would provide meaningful flexibility for affected taxpayers. A legislative fix would be more challenging if guidance does not materialize.
There is active engagement with Treasury regarding transition issues between Qualified Opportunity Zone (QOZ) 1.0 and 2.0. While timing is unclear, stakeholders are advocating for clarity to avoid disruption in development pipelines.
Additionally, 2026 is a big year for the QOZ 1.0 program, as all deferred gains will expire December 31, 2026 — regardless of when you invested in the program. Investors and fund sponsors should be thinking ahead about the option investors have to recognize the lesser of the fair market value of their qualified opportunity fund (QOF) interest or the original gain deferred under the program. Investors must also be ready to have a valuation of their QOF interest, which will focus on the fund’s unique tax-driven structure and compliance with additional calculations required under the QOZ regulations, among other things.
Additional housing-focused and adaptive reuse proposals remain under discussion, particularly those targeting office-to-residential conversion incentives.
As we continue fully into 2026, real estate fundamentals vary by sector, but overall capital is returning, construction pipelines are adjusting and legislative dynamics remain highly influential. The debt maturity wall in 2026–2027 will test underwriting discipline and capital structures. However, constrained new supply in several sectors, stabilizing interest rates and renewed transaction activity provide reasons for cautious optimism.
We continue to monitor these developments closely and remain committed to helping our clients navigate both market cycles and policy shifts with clarity and confidence.
Thank you to CoStar Group and ICSC for presenting with us on our recent national real estate and construction market update webinar.
Contact Dave Sobochan, Adam Hill or a member of your service team to discuss this topic further.
In this blog Cohen & Co is not rendering legal, accounting, investment, tax or other professional advice. Rather, the information contained in this blog is for general informational purposes only. Any decisions or actions based on the general information contained in this blog should be made or taken only after a detailed review of the specific facts, circumstances and current law with your professional advisers.