2026 commercial real estate outlook
Shorter-term loans that were originated in 2022 comprise the largest portion of those set to mature over the next several years.27 And they were underwritten when the average commercial mortgage rate was as low as 3.9%, at nearly the lowest levels over the past two decades and 270 basis points under the 6.6% rate as of the first quarter of 2025.28 This surge in borrowing costs will likely put pressure on debt-service coverage for many borrowers, especially for loans with floating rates or upcoming resets.
Global CRE refinancing risk is typically concentrated, not widespread. Germany and France have the greatest share among European countries at almost 20% each. Only 6% of UK loans are estimated to face refinancing gaps due to early property-value corrections.29 In Asia Pacific, markets did not experience as extreme a debt-fueled boom as other parts of the world, with the trajectory of interest-rate movement varying by country—Japan’s ultra-low rates have eased refinancing, while Australia’s elevated rates have put lenders under pressure.30
New lending opportunities
Amid the legacy loans turmoil, a brighter story may be emerging for new CRE debt origination. With property values stabilizing and lenders demanding more robust deal structures, new loans are often originating on more manageable terms. Investors and lenders who have fresh capital, unburdened by yesterday’s troubled loans, could have an opportunity to strategically invest in CRE debt markets. Through the beginning of 2025, new loan volume increased by 13% from the end of 2024 and over 90% from the same time last year—a recovery in lending activity to levels not seen since early 2023.31 Commercial mortgage loans spreads also tightened by 183 basis points, enabling sponsors to potentially pursue early refinancings and debt for property purchases.32
Renewed availability of debt capital
Access to debt capital has improved and could become even more robust going forward.33 Property-value resets have helped unlock liquidity, prompting some lenders and borrowers to reengage. All property sectors have seen an increase in active lenders.
Alternative debt sources appear to have been the driving force behind this resurgence. Lenders such as private credit funds or high-net-worth individuals often add to the global pool of available debt capital as they target diversification through high-yielding real estate assets. These sources accounted for 24% of US CRE lending volume last year, exceeding the 10-year average of 14%.34 The global private credit market reached US$238 billion in 2024, and is expected to reach US$400 billion in assets under management (AUM) by the end of the decade.35 As of August 2025, US$585 billion in CRE dry powder is poised for deployment.36
Lenders of all types are often more selective than in previous cycles, targeting stable returns, net operating income growth, and sound property fundamentals for capital preservation. This has heightened competitiveness for high-quality, income-generating assets, likely fostering a more dynamic environment for price discovery.
Some traditional lenders are making a cautious return
Lenders like banks and commercial mortgage-backed securities (CMBS) lenders are cautiously reentering an evolved CRE debt market following a few years of inactivity. CMBS lending recorded a 110% year-over-year jump driven by single-borrower deals through early 2025.37
Banks are often caught between caution and opportunity, offsetting potential losses from legacy loans with yield opportunities from new loan growth.38 This is reflected in the latest Federal Reserve Senior Loan Officer Opinion Survey, with underwriting standards becoming more relaxed compared to the last few years.39 As of June 2025, just 9% of banks are tightening their lending standards as compared with 30.3% in April 2024, and 67.4% in April 2023.40 Reduced tightening of lending standards has been a reliable precursor to capital value improvements in commercial real estate.41 Bank loan loss provisions coming under previous estimates and lower-than-expected net charge-offs both also point toward the improving health of banks’ CRE loan portfolios.42
Lending activity in Europe is also set to grow through the remainder of 2025 and into 2026, with nearly 80% of surveyed lenders planning to boost their loan-origination volumes.43 Moreover, European insurance companies and investment banks are expecting stronger growth in originations, compared to traditional banks.44 About 25% of Asia-Pacific investors increasing their real estate allocation reported doing so to potentially lower debt costs. This measured resurgence appears to be driven by companies wanting to restructure balance sheets, replacing underperforming real estate loans with better-structured, lower-leverage opportunities.45
Actionable guidance to consider
- Proactively manage new financing (and refinancing) opportunities with alternative debt sources. Compared to traditional debt sourcing, commercial real estate owners and investors from our survey plan to work more with private debt (up 4%), private equity (up 2%), and banks (up 2%) for property transaction financing, while potentially dealing less with CMBS lenders (down 10%).
- Reset investment strategies and underwriting assumptions. CRE leaders should recalibrate how they evaluate deals, properties, and their debt strategies; factor in higher financing and exit cap rates in underwriting; and determine if selling and repurposing projects may be wiser than holding.
- Strengthen risk management and transparency. Leaders should stress-test property portfolios for adverse scenarios including interest-rate hikes or further dips in property values; identify which loans or assets would be at greatest risk and have contingency plans; focus on improving the underlying fundamentals of potentially distressed properties; and share plans with lenders and investors on how they plan to recover asset value.
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/cloudfront-us-east-1.images.arcpublishing.com/morningstar/AWTHGGEIN5DSLOYW7BZYG64VBI.png "Callie Cox: A Student Teacher of Financial Markets")