Private capital is once again dominating commercial real estate investment—but beneath the surface, signs of strain are beginning to show.
Private investors accounted for 57% of all CRE investment volume in the first quarter, deploying $66 billion, a 17% year-over-year increase, according to CBRE. That surge pushed private capital well ahead of institutional buyers, REITs, and cross-border investors, helping drive total investment volume up 19% to $117 billion.
Yet despite that outsized presence, private investors were net sellers during the quarter, with a 1.0 ratio of dispositions to acquisitions. The shift suggests a more cautious stance at a time when the broader private credit ecosystem—now a critical pillar of CRE finance—is facing mounting pressure.
The private credit market has expanded rapidly over the past decade, filling a void left by banks following the 2008 financial crisis. "The U.S. market alone has tripled in five years, around a trillion, a trillion and a half," said Talia Hall, senior managing director of investment banking at CBRE. But that growth has introduced new risks, including heightened competition and looser underwriting in some corners of the market.
Recent turbulence has underscored those concerns. High-profile bankruptcies in 2025, including First Brands Group and Tricolor Auto Group, rattled investor confidence and raised questions about underwriting discipline. Still, Hall emphasized that the issues were largely isolated. "Weak controls, poor diligence and fraud, in some cases—largely idiosyncratic and not evidence that the whole market is broken," she said, noting that realized losses in private credit have broadly tracked public credit markets.
Instead, CBRE sees a market undergoing a reset rather than a breakdown. "We're seeing a healthy separation between weak and strong lenders, not a systemic problem," Hall said. "The market is moving from an environment where capital was abundant to where underwriting really matters again."
That distinction is particularly important for real estate investors. Hall drew a clear line between stress in corporate direct lending—especially in asset-light sectors such as software—and the fundamentals of CRE lending. Unlike corporate loans, commercial real estate debt is backed by hard assets and income streams. "Even when a loan goes bad, the lender still has an asset, cash flow and a recovery path," she said.
Still, CRE is not immune. The more immediate risk, according to CBRE, is a potential refinancing gap if private lenders pull back at the same time. Given the outsized role debt funds and alternative lenders now play in refinancing, any retrenchment could ripple quickly across the market.
There are early signs of that pullback. Data from PitchBook, reported by Reuters, shows private credit issuance fell sharply in recent months, dropping 40% in the three months ending May 2026 compared to the prior quarter. Total issuance declined from $74.56 billion in the first quarter to $44.76 billion by May, with lending to private equity-backed borrowers and leveraged buyouts both posting steep declines.
At the same time, investor sentiment is shifting. Some large private credit funds have faced redemption requests in the billions, prompting limits on withdrawals. Hall characterized the likely trajectory not as a sudden shock, but a gradual tightening. "The more likely risk is a slow bleed," she said, pointing to rising defaults, compressed returns, investor redemptions, and reduced lending capacity.
Fundraising trends reinforce that view. According to Preqin, global real estate fundraising dropped nearly 50% quarter over quarter in the first quarter of 2026, as capital raised by mega-funds late last year absorbed much of the available liquidity. Deal volume also fell to its lowest level since early 2024.
Even so, capital has not disappeared entirely. Private real estate deal values have remained relatively stable, with value-add strategies gaining traction. North America continues to lead globally, supported by resilient demand in industrial and residential sectors, according to Preqin.
For CRE investors, the takeaway is less about a collapse in capital and more about a transition. Private capital remains the dominant force in the market, but its cost, availability, and discipline are all shifting—potentially reshaping dealmaking in the quarters ahead.
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