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.

🧭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

💣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

powder, private credit filling financing gaps, prime assets in good markets continue to outperform

🚀Key Trends to Watch in 2026:

1️⃣ Fed Policy Evolution: Rate near neutral, data-dependent future cuts, inflation vs. growth balance

2️⃣ Office Market Transformation: Accelerating flight to quality, Class B conversions ramping up,

hybrid work finding equilibrium, values stabilizing

3️⃣ Technology Integration: PropTech adoption accelerating, AI reshaping property management,

smart building systems, data analytics driving decisions

4️⃣ Sustainability Requirements: ESG becoming table stakes for institutional capital, net-zero

commitments, green building certifications, climate adaptation strategies

5️⃣ Demographic Shifts: Remote work enabling migration to secondary markets, aging population

driving senior housing, Gen Z entering workforce/housing market

🛰️Looking Ahead - 2026 & Beyond

• Bottom Line: Despite headwinds, CRE fundamentals remain solid. Strategic investors will find

compelling opportunities as markets normalize and capital flows return. In closing, 2025 was a year of transition and recalibration for commercial real estate. As we enter 2026, stay informed about Fed policy, stay agile in your investment approach, and stay invested in quality assets and good markets.

What do you see for next year? Are you optimistic or cautious? Comment below.

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