“Turning toward a diversified strategy over prior asset class focus due to opportunities and challenges within each property type.”
Industry leaders’ 2026 expectations by sector and subsector show broadly improved real estate investment prospects with more caution on development prospects. Out of 27 subsectors, investment prospect ratings increased for 16 subsectors, while development prospect ratings declined for 18 subsectors. The top-rated subsectors for investment and development prospects are data centers and senior housing, which score higher in both ratings than all major commercial property types.
The major commercial property types face unique challenges and opportunities by subsector. Residential rental subsectors are highly rated except for high-income apartments. Medical office is highly rated and, despite improvement, central city and suburban office ratings are among the lowest by subsector. Identifying top property types or subsectors is seen as one step toward identifying the right asset, then underwriting with attention to risks amid the fog of uncertainty.
Data Centers
Looking at the ratings of all asset classes provided by the Emerging Trends survey respondents, data centers remain at the top for investment and development prospects. Data centers have held this first-place rank for three consecutive years and are the only subsector with both prospect scores above four, indicating sound investment and development conditions. Strong performance and demand are driving activity in this subsector, although data centers remain a small segment of the real estate market overall. Plus, for some interviewees, this subsector is considered infrastructure rather than a real estate asset.
“AI is driving considerable demand for data centers although the impact of land, water, and power constraints is unclear.”
Senior Housing
Out of 27 subsectors, senior housing ranks second for investment and development prospects, just behind data centers. Demand for the subsector faces a turning point in 2026 as the oldest boomers turn 80 years old. At this age, many older Americans move from their owned single-family homes into independent or age-restricted rentals, senior housing, or a family member’s home. This potential wave of demand lifted senior housing to the top of the apartment investment prospects list and resulted in a strong net buy in survey respondents’ assessment of buy-hold-sell strategies.
“Moving toward a shortage of senior housing beds over the next five years.”
Office
As a whole, this major property type remains rated by survey respondents at the bottom of both the investment and development prospect lists for major property types. However, as offices approach a new normal under changing occupier requirements, prospects are shifting among office subsectors. The buy-hold-sell recommendations indicate strong buying conditions for medical offices, with this subsector also ranking third for investment prospects and fifth for development prospects.
“Medical office is favored in an inflationary environment due to long-term leases with contractual rent bumps and variety of locations to target.”
Ratings of traditional office development prospects remain exceptionally low, both in the suburbs and central cities. Investment prospects have steadily improved over the past two years with prospect scores for both central city and suburban office rising above three. The last time both traditional office subsectors had investment scores over three was in the 2020 survey, which was conducted in late 2019.
Retail
Among major property types, retail ranks above only office overall. Two retail subsectors—lifestyle/entertainment and neighborhood/community centers—rank in the top five of all commercial subsectors for real estate investment prospects, while stand-alone retail ranks third for development. All three of these retail subsectors are strong buys based upon survey respondents’ assessment of buy-hold-sell strategies.
Consumer spending is holding up in the barbell of luxury and value categories, although tariff impacts are ahead. Neighborhood/community centers and stand-alone retail properties cater to necessity retailers and essential services for relatively durable demand from shoppers across the business cycle. The experience-oriented retailers in lifestyle/entertainment centers attract shoppers who stay for longer visits.
Self-Storage
Speaking of consumer spending, self-storage demand is changing. This highly rated subsector is becoming more than offsite storage when moving from house-to-house. With a strong investment prospects industry leaders are watching tenant use expand into climate-controlled units as offsite residential space, including for closets, hobby space, and entertaining. These new demand sources are arriving as additions to self-storage supply fade, drawing investor attention to the subsector.
Industrial/distribution
This formerly high-flying property type now sits in the middle of major property type prospects, with a higher investment score, at 3.61, than development score, at 3.21. These scores reflect middling ranks for the flex, R&D, warehouse, and fulfillment subsectors, while manufacturing scored 3.72 for investment prospects, for a top 10 showing among subsectors. National industrial/distribution demand is driven by consumer spending and likely to remain so given cost and labor constraints for the large-scale reshoring of manufacturing. Nonetheless, the property type is rated as a buy across all subsectors in the buy-sell-hold recommendations.
Multifamily Housing
After senior housing, moderate income/workforce housing and single-family rentals are tied with a strong 3.75 investment prospects score. Both subsectors slipped slightly in the 2025 subsector rankings, then returned to their relative placement in 2026. Limited development of mid-market housing, for sale or rent, has tightened vacancy rates in these subsectors. Potential homebuyers unable to find an affordable home to buy are increasingly turning to single-family rentals for more space.
“Industrial and multifamily have been the focus, but the premium in these sectors is gone.”
The concentration of new apartment supply on the highend of the market leaves fewer options for moderate income households and pushed down investment prospects for luxury properties. High-income apartments remain at the bottom of the apartment investment prospect rankings, but the subsector’s 3.49 score is a significant improvement from 3.19 in 2019 and a post-pandemic low of 3.09 in 2024.
Momentum is shifting for student housing with demand challenges ahead from a 2025 peak in America’s graduating class, restrictions on international students, and constraints on federal aid. Investment prospects for this subsector rank above high-income apartments, while accounting for the largest share of hold respondents in the buy-hold-sell recommendations.
With these observations, we spotlight five significant property trends in this chapter.
