Uncertainty about the impact of tariffs, the labor market and interest rates on the U.S. economy is holding back CRE investment and driving investors to become more defensive, according to senior CRE executives who spoke during a webcast yesterday by Marcus & Millichap on the 2026 CRE investment outlook.
John Chang, chief intelligence and analytics officer with Marcus & Millichap, emphasized that the key element the economy is addressing is uncertainty. He said this restrains a lot of decision-making and creates greater caution on Wall Street and among investors.
He noted companies have so far been absorbing much of the tariffs, which he described as essentially a tax on many forms of consumption -- rather than passing them on to consumers. But that is expected to change.
“The theory is that companies will start to pass tariffs through, maybe in the fourth quarter with the new model year for cars, but for other retailers, they’re probably going to push into 2026 after the holiday season.
“Tariffs keep moving, and every time they move it creates more uncertainty and everybody has to recalibrate again,” he noted, adding that they also create inflationary pressures.
Chang also pointed to the slowdown in labor market growth. In 2025, the company originally forecasted the creation of 900,000 jobs. In August, the prediction slumped to 600,000 jobs. The current forecast for 2026 is between 300,000 and 400,000 jobs.
In announcing a 25-basis point cut to the federal funds rate yesterday, a statement from the Federal Reserve specifically noted that “downside risks to employment rose in recent months” and that it is firmly committed to supporting maximum employment.
Chang said the Fed's 25-basis-point rate cut was already baked in. He predicted a similar cut in December, with others to follow in the middle and end of 2026. However, Fed chair Jerome Powell said later that a cut in December was not a foregone conclusion.
Another factor expected to influence the CRE market is the passage of the One Big Beautiful Bill Act. Lisa Knee, managing partner with the Eisner Advisory Group, cited its favorable tax implications and said there has been an uptick in conversations with people ready to start building, buying and investing in the market.
“Now there is some certainty in the uncertainty,” she commented.
Meanwhile, banks are considering increasing their CRE investment, Chang said.
“With lenders tightening their spreads, a lot more deals would make sense in the current climate.” He noted that more banks are becoming active in the market, resulting in improved liquidity and more competition in lending, which is helping narrow spreads. He said deregulation was also expected to change bank ratios and enable them to make more capital available.
He noted that the Mortgage Bankers Association has predicted a 24% increase in CRE lending in 2026. Fannie Mae and Freddie Mac rates are expected to be in the mid- to upper-4 % range. Commercial rates have moderated to the mid-six percent range and are looking “pretty good,” Chang said.
As for the crucial question of whether the U.S. is headed into a recession, Chang cited economists' estimates of a 35% to 65% probability. Ultimately, he anticipated that the country would dodge a recession but go through a period of very slow growth due to the challenges of immigration policy, tariffs and the impact of AI on growth.
Jeff Reder, managing director, private real estate at CenterSquare Investment Management, also cited volatility and the slowdown in labor market growth as matters of special concern.
“I think at this point in this environment, it’s really going to come down to asset selection, active management, and adding value to drive value,” Reder said.
“You’re just not going to have significant growth outperformance or cap rate compression to drive returns anymore. So it’s sort of back to real estate investing 101 and picking the right sectors that will perform best in that slower growth, uncertain environment.”
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.