Economic growth continued in September, although hiring slowed and inflation picked up. Consumer and business spending remained strong. The Federal Reserve raised interest rates by a quarter percentage point, while long-term Treasury yields also rose. Higher borrowing costs continued to affect commercial real estate investment and refinancing activity.
Commercial real estate continued to improve in September, although conditions varied across property types. Some sectors improved further, while others remained mostly steady. Below is a summary of the performance of each major commercial real estate sector in September of 2026:
The office sector continued its gradual recovery in the third quarter, supported by strengthening demand and improving occupancy trends. Sustained positive absorption and firmer rent growth suggest that market conditions are becoming more constructive, although substantial excess inventory continues to limit the pace of recovery. Class A led demand despite elevated vacancy, while Class B saw moderating tenant losses. Class C maintained the lowest vacancy despite continued move-outs.
Multifamily fundamentals strengthened in the third quarter, supported by resilient demand and slowing new supply. Absorption outpaced deliveries, helping reduce excess inventory, ease vacancy, and support gradual rent growth, although pricing power remains constrained. With the construction pipeline at a decade low, supply pressures could moderate further. Class A benefited from a favorable supply-demand balance, while Class B maintained steady demand and improving fundamentals. Class C returned to positive absorption and retained the lowest vacancy among classes.
Improving demand supported the retail sector in the third quarter, narrowing the supply-demand gap while vacancy held near historic lows. Despite deliveries exceeding absorption, tight availability helped sustain pricing conditions, although rent growth moderated. General retail led demand and maintained the lowest vacancy, while Neighborhood Centers, Malls, and Power Centers returned to positive absorption. Neighborhood and Power Centers recorded the strongest rent growth, though new supply could place modest upward pressure on vacancy.
The industrial sector made further progress toward rebalancing in the third quarter as stronger demand narrowed the gap with new supply. Improving absorption is helping reduce excess inventory, although elevated vacancy and restrained rent growth continue to limit the recovery. Logistics remained the primary driver of demand, while specialized facilities maintained the lowest vacancy. Flex continued to lag, recording further tenant move-outs and the highest vacancy among major industrial property types.
Conditions across the hospitality sector showed limited change in September, with occupancy still below pre-pandemic levels amid persistent weakness in corporate travel and the impact of remote work. ADR and RevPAR continued to exceed 2019 levels, supporting operating performance despite softer occupancy. Meanwhile, elevated financing costs and economic uncertainty continued to constrain investment activity and temper investor interest.
