Commercial real estate investor sentiment has weakened after three consecutive quarters at the top of the preference rankings, according to new data from SitusAMC's quarterly investor survey, as slower-than-expected recovery and persistently modest returns pushed investors toward caution.
Cash surged to the top of the asset-class hierarchy in the first quarter, while CRE slipped into a tie with bonds for second place. The shift underscores a broader defensive posture forming across institutional capital markets as investors weigh the possibility that higher interest rates may linger longer than previously expected, the report said.
After tentative signs of a thaw late in 2025, investor behavior became more conservative in Q1. The share of respondents preferring to "hold" rose sharply from 63% to 70%, while those favoring "buy" declined from 30% to 26% and "sell" slipped from 7% to 4%. Despite the pullback, SitusAMC noted that buy sentiment remains close to its 10-year average, suggesting hesitation rather than retreat.
The firm's Insights data also shows capital conditions tightening, with investors reporting increasingly disciplined underwriting and reduced capital availability, both of which are weighing on transaction activity and workout timeliness across markets.
At the property level, apartments were the standout performer in sentiment. Favorability jumped from 44% to 60%, marking the highest reading in a year. Investors pointed to multifamily's relative stability amid geopolitical uncertainty and uneven macroeconomic signals, reinforcing its position as the most broadly preferred CRE sector.
Office, long the market's most challenged segment, showed a more complicated picture. While overall preference declined from 22% to 16% after a strong fourth quarter, sentiment remains far above its pandemic-era lows and represents the second-highest reading since COVID disrupted the sector. A year ago, office ranked last among property types.
Industrial and retail both saw moderating sentiment. Industrial favorability fell to 16%, tying office for second place but marking a one-year low. Investors remain broadly supportive of the sector but increasingly cautious about returns relative to risk as demand cools and occupancies slip. Industrial rents declined slightly in Q1 and absorption turned negative for the first time since the global financial crisis, according to Reis.
Retail sentiment also weakened, falling from 11% to 8%, its lowest level in nearly five years. Investors continue to flag e-commerce disruption risks, though brick-and-mortar fundamentals remain relatively stable in well-located, necessity-driven centers. Occupancies held steady and supply remains at historic lows, but perceived valuation has softened.
Hotel remains the weakest segment in terms of sentiment, with preference collapsing to 0% in Q1, its lowest level in over two years. Investors remain wary of uncertainty in travel demand tied to geopolitical tensions and elevated fuel costs.
© 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.