In this episode of the REconomy Podcast™, Chief Economist Mark Fleming and Deputy Chief Economist Odeta Kushi dig into the 2026 outlook for commercial real estate (CRE) with senior economist Xander Snyder, who identified five forces that will shape the CRE market as its nascent recovery accelerates. Stabilizing prices, rising sales activity, rebounding refinancing volumes, increasing distress resolution, and lenders pivoting from defense to offense signal that 2026 may be the year the CRE recovery truly starts to feel like one.
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Listen to the REconomy Podcast™ Episode 131:
“The data is telling an increasingly compelling story: the new commercial real estate cycle has begun.” — Xander Snyder, Senior Commercial Economist
Transcript:
Odeta Kushi - Hello and welcome to episode 131 of The REconomy Podcast, where we discuss economic issues that impact real estate, housing, and affordability. I'm Odeta Kushi, deputy chief economist at First American. Here with me today is Mark Fleming, chief economist at First American, and Xander Snyder, senior commercial economist at First American. Hi Mark. Hi Xander.
Mark Fleming - Hi Odeta and hi Xander. We're in the middle of the holiday season, and as the end of the year approaches, we economists like to look ahead and make informed guesses — otherwise known as forecasts — about what the new year may look like. Today, Xander is joining us to walk through First American’s commercial real estate outlook for 2026.
Xander Snyder - That's right. Did everyone bring their crystal balls for this episode?
Odeta Kushi - Mine is around here somewhere, but as usual, it's a little cloudy these days. Still, we’ll charge ahead. Today we're looking toward 2026 and asking a big question for commercial real estate: Is 2026 the year when the recovery finally starts to feel like a recovery?
Mark Fleming - Yes. After a few years of interest-rate and demand shocks, falling prices, and lots of uncertainty, people are wondering whether we're still in the storm or finally seeing clearer skies. Expect a lot of weather metaphors today. Maybe a less cloudy crystal ball, Xander?
Xander Snyder - Mm-hmm. I'd say we're not in the all-clear yet, but the data is telling an increasingly compelling story: the new commercial real estate cycle has begun. Today we’ll walk through five forces shaping our 2026 outlook — price trends, sales activity, refinancing volumes, distress levels, and lending activity — and what all of this means for investors, owners, operators, and lenders in commercial real estate.
Odeta Kushi - Let’s start with the big picture before moving through those five forces. Xander, back in 2024 you borrowed the phrase “stay alive till 25,” then added “stay in the mix till 26.” Do you think that still holds up?
Xander Snyder - I do. It’s helpful to think about commercial real estate through the lens of the business cycle. This is a cyclical industry. After the long expansion following the Global Financial Crisis, COVID-19 and rate hikes finally triggered a downturn. So, 2022 through 2024 were downturn years.
But, in 2025, prices stopped falling and distressed assets began trading hands more consistently. That leads to the first of the five forces: price stability. Price stability is what marks the end of one cycle and the beginning of the next. It arrived in 2025, giving us a stronger foundation for more robust activity in 2026 — a foundation we didn’t have at the beginning of this year.
Mark Fleming - So not a flip-the-switch moment in January 2026, but a clear indication that more activity is coming. And it’s not as if we’re suddenly returning to mid-2021 levels.
Xander Snyder - Exactly. Commercial real estate moves slowly. Because of that, people often expect trends to shift faster than they actually do. Transaction volume is still below pre-pandemic norms, but it's above 2024. Buyers are coming back — gradually, not all at once.
Mark Fleming - That makes a lot of sense. Price stability is usually a precondition for significant real estate activity. When prices are falling quickly, buyers wait for better deals and lenders pull back because no one wants to catch the proverbial falling knife. Once prices flatten and start to rise modestly, confidence improves.
Xander Snyder - Right. And this leads us to the second force shaping the outlook: rising sales volume. Even though the increase has been gradual, it has also been consistent throughout 2025. Sales volume has climbed from its lows and is now running above 2024 levels. It has been higher in every quarter this year, even if we’re still below pre-pandemic benchmarks.
Odeta Kushi - So not a boom, but definitely an improvement from where we were last year.
Xander Snyder - Exactly. Think of this shift as moving from skepticism to cautious participation. Buyers don’t need a perfect, storm-free outlook to reenter the market. They just need to feel that price declines have mostly run their course. As more transactions close at these new price levels, that signal strengthens. Appraisers get more comparable sales, lenders gain more comfort, and everyone develops a better sense of what properties are truly worth in today’s environment.
Mark Fleming - What does that mean for investors who’ve been waiting on the sidelines for more price certainty?
Xander Snyder - If you’re well-capitalized and patient, this is the moment in the cycle when opportunities start to appear. Many of the best investments made in the last cycle happened during the early recovery phase in 2011 and 2012. The key today is that the price floor looks more credible than it did a year or two ago. That credibility is drawing purchase demand back into the market. And there’s a substantial amount of “dry powder” — meaning liquid equity capital — waiting to be deployed. Investors have been waiting for discounted assets, and now they’re beginning to see those opportunities materialize.
Odeta Kushi - All right, so we’ve covered the first two forces: price stabilization and rising sales. Let’s move to the third force — refinancing activity. In the residential world, refinancing has dropped significantly because so many homeowners locked in below-market mortgage rates. But in commercial real estate, borrowers face balloon maturities, where a large portion of the loan must be refinanced at once instead of gradually amortizing over time. So how are things shaping up as more of these loans come due?
Xander Snyder - Balloon maturities are one of the major differences between commercial real estate loans and residential mortgages. They also help explain why refinancing activity has rebounded faster than sales in commercial real estate. When a loan reaches maturity, the borrower must make a decision because a large lump-sum payment is owed unless the loan is refinanced. This doesn’t really happen with U.S. residential mortgages. Just like sales volume, commercial refinancing volume fell sharply between late 2022 and early 2024. But that trend has reversed. From the low point in the first quarter of 2024 — when refinancing volume was about $55 billion — activity has more than doubled to roughly $114 billion by the third quarter of 2025. This level is consistent with refinancing activity seen in 2019 and 2021. And again, balloon structures are a big reason why refinancing must continue even in tighter conditions.
Mark Fleming - That’s a major shift back toward pre-pandemic and early-pandemic refinancing levels. When refinancing volumes recover, it signals three things. First, some borrowers are finding ways to make the math work at higher interest rates, whether that involves bringing in fresh equity, reducing leverage, or accepting more conservative underwriting. Second, lenders are increasingly comfortable refinancing instead of defaulting to an indefinite “extend and pretend” approach. Third, some borrowers simply hit their loan maturity dates and must take action one way or another. The key takeaway is that the refinancing pipeline is flowing again. It doesn’t mean every loan will survive or that borrowers love the new terms, but it does show the market is once again sorting out which properties remain viable in this early phase of the new cycle and which need to change ownership or be repurposed.
Odeta Kushi - So that covers the first three forces: price stability, rising sales, and increasing refinancing activity. This sets the stage for the fourth force — distress. We’ve all seen the headlines about office buildings handing back the keys or delinquency rates rising. Where are we now in the cycle of stress and resolution?
Xander Snyder - Distress is ongoing, and we expect it to continue, likely peaking in 2026 before gradually receding. One indicator is that the share of distressed sales relative to all sales has been rising. More distressed assets are finally making their way through the pipeline and being purchased by new owners at lower cost bases. In many of these cases, resolution is being reached, even if that means prior owners lose most or all of their equity. But resolution still adds liquidity to the market and signals movement. Office properties remain under the most pressure, with stress levels near post–Global Financial Crisis highs. Multifamily is also showing strain in certain segments, particularly where deals were underwritten with aggressive rent growth assumptions or very low cap rates during the ultra-low-rate years.
Odeta Kushi - In the blog post you wrote about this outlook, you included a chart showing commercial mortgage-backed securities — or CMBS — delinquency rates. It showed office CMBS delinquencies hitting new highs, with some multifamily CMBS categories climbing as well. Retail delinquency rates are mostly flat, sitting just above 4 percent. But CMBS loans are securitized loans sold to multiple investors, so they behave differently from traditional bank loans. Do CMBS delinquency rates reflect what’s happening across the broader commercial real estate debt market?
Xander Snyder - It’s a good question. I’d say CMBS delinquency rates tell us something, but they don’t provide the full picture. After the Global Financial Crisis, bank loan delinquency rates eventually reached levels close to CMBS delinquencies, but they rose with a lag. Today, CMBS delinquency rates are very elevated, while bank delinquency rates remain lower. Banks have more flexibility when it comes to modifying or restructuring loans, whereas CMBS structures make workouts much more difficult. Because of that, stress tends to appear in the CMBS space first.
Mark Fleming - So CMBS delinquency data shouldn’t be treated as a one-to-one indicator for the entire commercial real estate debt market, especially since CMBS only accounts for about 15 percent of all commercial mortgages.
Xander Snyder - Exactly. CMBS delinquency rates are directionally useful — they’re a good early warning indicator — but they’re not representative of the typical commercial real estate loan.
At this point, most distress situations have already been identified. As lenders work through them, we expect distress to peak in 2026 and then gradually ease. Some bank loan distress will likely rise next, following the patterns already visible in CMBS data. Even so, we’ll still be talking about distress throughout 2026, especially in office and certain multifamily segments. But the narrative will shift from “stress is building” to “stress is being resolved,” as lenders free up balance sheet capacity by clearing older problem loans.
Odeta Kushi - That connection between resolving distress and improving the lending outlook might seem counterintuitive at first. But it really comes down to balance sheet capacity. When banks resolve loans that have been stuck in amend-and-extend mode, they free up capital to make new loans.
Mark Fleming - It’s like cleaning out your closet. It can be painful to get rid of things you overpaid for, but once you do, you finally have space for items that actually fit your needs.
Odeta Kushi - I feel like that comment was directed at me, but I’m going to let it go. That brings us to the fifth and final force — lenders are re-engaging. As distress gets resolved, banks regain room on their balance sheets to originate new loans.
Xander Snyder - That’s right. Commercial real estate lending has regained real traction. In the third quarter of 2025, lending origination activity increased for most major lender groups compared to the prior year. Life insurance companies were the one exception, with a slight decline. But overall, lending activity is improving right now, not slowing down.
Odeta Kushi - So lenders are slowly shifting from defense back to offense, even though underwriting remains tighter than it was during the ultra-low-rate era. Taking a step back, when you combine all five forces — price stability, rising sales, increased refinancing, distress working through the system, and lenders re-engaging — what’s your overall view of 2026?
Xander Snyder - I’d say this early recovery is poised to gain momentum next year. We’ll move out of the transition phase and into the acceleration phase of the new commercial real estate cycle.
Mark Fleming - So commercial real estate is once again behaving like a cyclical asset class rather than a victim of pandemic shocks. Prices are adjusting, capital is reallocating, and fundamentals are reestablishing themselves. That’s what a functioning market looks like.
Odeta Kushi - Exactly. And Xander, if you had to give listeners one key takeaway from the 2026 outlook, what would it be?
Xander Snyder - I’d say we’ve moved past the wait-and-see period. 2025 was the handoff year, and 2026 is when the new cycle begins to feel real. It doesn’t mean rush in blindly, but opportunities will become more compelling for investors who can underwrite to today’s environment rather than yesterday’s.
Odeta Kushi - That’s great. Thank you for joining us, Xander.
Mark Fleming - Wait, wait, wait. There is absolutely no way we finish this episode without one ‘80s reference. I can’t let our listeners down at the end of the year. So next year… may the five forces be with you. Now, technically that’s from Star Wars in 1977. I saw that movie with my aunt, and the phrase “may the Force be with you” is definitely in that one. But, in my defense, you also have The Empire Strikes Back from 1980 and Return of the Jedi from 1983. Need I keep going?
Odeta Kushi - Depending on which movie you reference, it could also count as a ‘90s or 2000s reference. So sure — let’s consider it an intergenerational reference to close out the year. Yes, may the forces be with you all. Thank you for joining us on this episode of The REconomy Podcast. If you have an economics-related question you’d like us to feature in the future, you can email us at economics@firstam.com.
Mark Fleming - I love it.
Odeta Kushi - And as always, if you can’t wait for the next episode, you can subscribe to our Econ Center at firstam.com/economics or connect with us on LinkedIn. Until next time.
Thank you for listening, and we hope you enjoyed this episode of The REconomy Podcast from First American. We're pleased to offer you even more economic content at firstam.com/economics. This episode is copyright 2025 by First American Financial Corporation. All rights reserved.
This transcript has been edited for clarity.
