PREA Forecast: Modest Commercial Real Estate Recovery Next Year

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The commercial real estate market could see a “modest” recovery next year, with total returns forecasted at 5.9% in 2026, according to the Pension Real Estate Association, Hartford, Conn.

That figure represents an improvement over recent years but remains below long-term historical averages, PREA noted.

PREA surveyed 26 firms for its quarterly survey. The organization noted the evolving nature of the commercial real estate market, “where optimism is tempered by persistent challenges, particularly in the office sector.”

Key findings from PREA’s fourth-quarter 2025 survey include:

Overall Market Outlook: The national commercial real estate market is expected to see a 5.9% total return (including income) in 2026, a modest recovery following recent “sluggish” years. But this figure represents a 140 basis point decrease from the average forecast for 2026 that PREA reported at the start of 2025. “Optimism about 2026 continues, although that optimism has waned somewhat since the start of this year,” the report said.

That total return including income could increase to 6.9% in 2027, the report said.

Top Performing Sectors: The senior housing sector is projected to again be the top performer in 2026, with total returns expected to reach 10.8%. Retail is expected to show the second-highest returns in 2026.

Office Sector: While office properties are expected to experience positive total returns in 2026, the sector is expected to lag the other sectors with returns anticipated at just 4.8%. Modest declines in property values are anticipated for office assets in 2026, with a potential floor not expected until 2027.