2025 Commercial Real Estate Year-End Recap Pt 2
Here are some notes from the December meetup of the Metro Detroit Commercial Real Estate Group: Looking ahead to 2026, we see compelling risk-adjusted opportunities across multiple property types. š§2026 Investment Opportunities ⢠Value-Add Office: Cap rates at cyclical peak, creating entry points, Class B office-to-residential conversions are on the rise, repositioning plays are up in improving submarkets ⢠Workforce Housing: Low Income Housing Tax Credit (LIHTC) expansions and opportunity zone incentives are now permanent, structural supply shortage, strong policy support among State and Federal policymakers ⢠Industrial/Logistics: Last-mile facilities near population centers command premium rents, e-commerce not slowing, supply chain reshoring continues ⢠Senior Housing: Aging Baby Boomers (64M people 61-78 years old), structural supply-demand imbalance, medical advances extending lifespans ⢠Data Centers: benefit from explosive AI and digital economy expansion, cloud computing growth, and crypto mining š£Key Challenges & Risk Factors for 2026 ⢠Interest Rate Path Uncertainty: Fed approaching neutral rate, future cuts data-dependent, Inflation concerns remain among some Fed officials, and housing market activity is still weak ⢠Debt Maturity Wall: Approximately $1 trillion in CRE loans maturing through 2026, refinancing at higher rates than at origination, lenders remaining selective, some distressed sales expected ⢠Climate Risk: Natural disasters increasing in frequency and intensity, insurance costs are rising, Coastal markets are particularly vulnerable, and building resilience requirements are increasing ⢠Policy Uncertainty: Potential tariff changes could impact inflation, regulatory changes at federal/state levels, tax policy changes are possible ⢠Cybersecurity Threats: PropTech systems are increasingly targeted, Smart building vulnerabilities, data privacy concerns, ransomware attacks on property management ⢠Mitigating Factors: Strong economic fundamentals (2.5% GDP), over $1T in institutional dry