Real estate emerged from its interest rate-driven repricing cycle in 2025 to face sticky inflation and interest rates alongside policy that raises new risks for real estate demand. Economic uncertainty looms large over the U.S. economy amid stark changes to fiscal, trade, and immigration policy, generating a fog over the path forward. In this cycle, real estate continues to offer development and investment opportunities but requires navigating through the fog.
“It is a curious time for real estate with lots of uncertainty and a desire to do deals. Today’s market does not reflect where we are going.”
Perceptions of the fog, from its density to its potential duration, vary across the industry. Emerging Trends interviewees and survey participants tend toward three views of the fog—patchy, heavy, or clearing. Those navigating through heavy fog expect today’s uncertainty over trade and immigration policy to have lasting consequences for real estate demand and values, while those seeing patchy fog expect easier navigation through these consequences amid stronger real estate capital market conditions. The fog is clearing for those anticipating a boost to capital markets from low interest rates and temporary policy impacts on real estate demand.
The Fog
Tariff uncertainty. The scale, though in flux, reflects a stark turn away from decades of globalization and U.S. free- or fair-trade-focused trade policy. Higher intermediate and final goods prices raise construction and operating costs as well as dampen consumer spending.
Migration uncertainty. Policy restrictions on international immigration and military-assisted deportations reduce the working-age population, which in turn reduces economic growth and real estate demand. Domestic migration is slowing, particularly for homeowners, while climate and policy changes may shift the direction of flows.
Interest-rate uncertainty. The federal funds rate peaked in 2024 and rate reductions to date have spurred more real estate transaction activity. However, the inflationary impacts of tariffs and reductions in the labor supply could limit, or pause, the path to lower-interest rates.
“When thinking about real estate, we tend to discount exogenous events. But we live in a more volatile world with a higher propensity for exogenous events.”
The composition of the fog is evident in survey responses ranking the issues for real estate in 2026. Across categories, interest rates, immigration policy, inflation, and the labor market are top concerns for the industry.
Economic/financial issues
Industry leaders note interest rates, job/income growth, and inflation as the top three economic and financial issues for real estate in 2026. Interest rates and the cost of capital were cited by nearly 90 percent of Emerging Trends survey respondents, given that real estate values have just recovered from an interest rate-driven repricing cycle. Lower rates would support continued appreciation, while the third-rated economic issue, inflation, could keep rates higher for longer.
Inflation and tariffs (one factor for inflation) are a concern for nearly half of respondents. However, industry leaders are split on where inflation may be headed next year and beyond. In 2026, the general expectation is for stable to higher inflation, with almost half of survey respondents expecting higher inflation and one-third expecting stable inflation. Over the next five years, sentiment is roughly split into thirds across lower, higher, and stable inflation.
“Immigration policy will tighten labor supply, raise food prices, and contribute to inflation pressure.”
Social/political issues
More than half of industry leaders cite immigration policy and housing costs and availability as the most important social and political issues facing real estate in 2026. Immigration policy, cited by 59 percent of respondents, is a key factor in job and income growth uncertainty, which is the second most cited economic issue of concern. Housing costs, cited by 51 percent of respondents, tie back to economic concerns about interest rates and tariffs.
Political extremism was cited by 36 percent of respondents, while roughly one-fourth of respondents cited income inequality, crime/public safety, and geopolitical conflicts. The breadth of topics cited by sizeable minorities illustrates the complexity of navigating the fog.
Real estate/development issues
The most significant issue facing real estate in 2026 is costs—labor, regulatory, operating, land, leasing/retention, and extreme weather. Labor costs and availability were cited by nearly three-quarters of industry leaders as a critical issue for real estate in 2026, while more than half noted the state and local regulatory environment and operating costs. One-third of respondents are concerned about land costs, tenant leasing, and retention costs. All are woven together in the fog with economic and sociopolitical issues.
Firm profitability
Fifty-five percent of Emerging Trends survey respondents expect their firm’s profitability prospects to be good to excellent in the coming year, but this reflects a decline from 65 percent in last year’s survey. Similar to a phenomenon that occurred in the pandemic-era survey and again in 2023 when interest rates were rising, the responses for both fair prospects and abysmal to poor prospects increased this year.
Similar to industry views on inflation, survey respondents are also split over the path ahead for short- and long-term interest rates as interviewees indicated real estate strategies diverge based upon in-house views on lower or higher-for-longer interest rates.
Time to buy?
In aggregate, real estate leaders are optimistic about U.S. buying opportunities ahead. The 2026 buy rating of 3.74 marks a peak in the Emerging Trends Barometer score for the past 20 years. The barometer also shows good scores (above three) for holding and selling real estate in 2026. The mix of excitement and fear is palpable and, depending on the view of each firm and decision maker, navigating through the fog is easy, difficult, or temporary.
“Intentional volatility has been added to the system. Tariffs caused everybody to pause, then the lightbulbs turned on... Greed outweighed fear and we have to figure it out.”
Patchy Fog
Industry leaders considering the fog to be patchy are wary of new policy-based volatility but view it as a sideshow to their long-term real estate strategy. They expect further interest rate declines to lift values and that tariff impacts will be temporary. A point of optimism among industry leaders seeing just patchy fog is increasing liquidity, particularly among real estate lenders. Expectations for lower rates suggest more equity capital ahead, which—combined with easier borrowing conditions—should drive improved transaction activity.
“Take care of our real estate, take care of our tenants.”
Heavy Fog
This real estate outlook assumes higher-for-longer interest rates will impact values further, and that opportunities to outperform will be based upon income growth rather than cap rate or spread compression. Asset selection and operational excellence are key for this group of industry leaders. Investment strategy in this group focuses on subsectors with durable demand and takes a geographically granular approach to underwriting.
“Not time to put everything in the market at once; defensive, and selective.”
Clearing Fog
These industry leaders expect the fog to be a short-term phenomenon with stronger capital market and leasing activity on the other side. Like those seeing patchy fog, those seeing the fog clear expect lower interest rates in the coming year. Where they differ is in their expectations for real estate fundamentals. Today’s uncertainty is anticipated to lift with brighter days ahead for the U.S. economy and leasing demand, supported by lower taxes and less regulation. Real estate is an optimistic industry by nature and these leaders are bullish about real estate beyond a little fog.
“The tax bill is great for real estate, good for corporate America, and should create growth opportunities.”
With these three perspectives on the fog, we introduce five Emerging Trends that define the opportunities and challenges ahead for real estate in this cycle:
