At the start of 2026, the real estate narrative was moving in a clearer direction. After a volatile 2025, it was anticipated that with rates going down, affordability easing in the housing market, and retail and industrial sites back on more solid footing, recovery was going to pick up. The prevailing view was that improved commercial real estate conditions would lead to broader transaction activity, and while conditions were initially on track to do just that in 2026, the situation has changed.
Primarily, geopolitical uncertainty is overshadowing any hopes of consistency for the rest of the year, leading to varied market reactions.
“Coming into the year, we expected to see increased demand, and that’s happened,” said Dan Mullinger, head of PNC Real Estate. “We continue to see pretty strong demand on the loan side, even with everything happening in the geopolitical environment.”
Demand remains intact, but the greater certainty we held regarding recovery has mostly vanished as business owners and investors get used to a new, constantly changing normal; A normal that still offers opportunity despite the uncertainty.
Demand Is Still There, But Deals Are Slower to Close
While geopolitical instability normally has a cooling effect on borrowing, borrower engagement hasn’t declined as much as anticipated.
However, Mullinger is seeing a reluctance to rate lock and close on agency loans, given that 10-year treasury rates remain in the mid-4% range. The new Chair of the Fed, Kevin Warsh, previously signaled his desire to cut rates further, but higher than expected inflation is going to further complicate that decision.
This is creating a growing disconnect between loan pipelines and closings and propelling more creative financing options. “You could see more bridge loan activity to replace maturing term loans,” continued Mullinger. “Borrowers may look to bridge while they wait for rates to move.”
Times like these require a tailored solution that comes from a banking provider like PNC that’s seen nearly every challenge and obstacle before.
Multifamily: A Slower Recovery Than Expected
Housing was one of the more optimistic segments of the early-2026 outlook. Improving affordability, softer rent growth, and policy support for affordable housing were expected to help stabilize leasing and set the stage for renewed development interest.
“Multifamily leasing continues to be more of a struggle,” Mullinger said. “There’s still a lot of supply, and we’re not seeing the uptake you’d expect.”
Results have been mixed this year. Activity is happening, but not enough to drive meaningful absorption. Concessions remain common. Turnover is elevated. Occupancy gains have been limited, even with relatively solid job growth.
However, timing is important. Mid-year is typically the core of leasing season, when demand should be the strongest. It’s an industry very dependent on the pressure of time.
Recovery has been slower than anticipated and it’s an area to keep an eye on moving forward.
Capital Is Available, But It Is Narrower Than Expected
Capital markets activity remains one of the more stable parts of the outlook, and one of the most revealing. Commercial Mortgage-Backed Security (CMBS) issuance has been strong relative to expectations, especially given the rate environment. That supports the idea that liquidity has not left the system, it’s just shifting.
In fact, Mullinger said Single Asset Single Borrower (SASB) deals, a specific type of CMBS that securitizes a single, large loan, are dominating the market.
Large, institutional-quality assets are capturing a growing share of issuance, with traditional conduit lending representing a smaller portion of the market. Year to date, CMBS origination has hit approximately $60 billion, and SASB deals make up well over half of them. The rest is made up of Freddie Mac and conduit business.
Amidst the boon in single major assets like office towers and retail spaces across the country, the largest asset driving growth is AI data centers.
Earlier optimism assumed that improving conditions would gradually broaden access to financing. Instead, capital is becoming more selective, not more inclusive.
Mullinger cautions, “CMBS issuance has been strong, but if rates stay higher, at some point that could slow capital markets activity.”
Inflation and Rates Are Reintroducing Uncertainty
The most meaningful change since the start of the year is the returning uncertainty around inflation and monetary policy. Earlier expectations leaned on moderating inflation and potential rate cuts as tailwinds for real estate. Rising energy prices complicated that outlook and hopefully the recent pullback will be sustained.
"Oil reaching over $100 a barrel was a shock to the system resulting in higher costs across the economy, including operating costs and construction expenses," Mullinger said. "We are hopeful the recent decline in oil will hold for the rest of the year, giving costs the opportunity to decline, but there is more uncertainty going into the second half of the year than I would have liked."
It's important to note that much of this uncertainty is predicated on geopolitical tension that could shift at any moment.
A Market That’s Still Moving
While the commercial real estate outlook for 2026 has changed since the beginning of the year, it hasn’t completely overturned previous predictions. Demand remains strong even though deals may be taking longer to close, capital is active yet selectively flowing, and certain sectors are continuing to show strength.
The path forward is tighter and more uncertain, which is why it’s important to have a banking provider like PNC on your side with its comprehensive solutions and long-term institutional perspective to help navigate market volatility.
