The Federal Funds rate target range at the end of Q1 2026 was 3.50% to 3.75%.  The most recent adjustment came in December 2025 when the Fed reduced the target range by .25%, the third rate cut in 2025.  The Fed continues to focus on its dual mandate of promoting maximum employment and stable prices across a broad range of economic conditions.  According to the Feds, reaffirmed longer-run goals and monetary policy strategy from January 2026, “Employment, inflation, and long-term interest rates fluctuate over time in response to economic and financial disturbances.”  The Iran war is making the Fed’s job more challenging, as rising gas and oil prices affect other parts of the economy, raising prices for goods and services.  These inflationary impacts have a ripple effect through the economy and act as a drag on GDP.  However, looking ahead, both FedWatch and the Polymarket Fed decision probabilities indicate a 98% chance that the Fed will keep rates at their current level.  All things considered, this seems likely.

CRE activity for Q1 2026 continued with the energy that we experienced in 2025, showing clear indicators of a recovery from the doldrums of prior years.  Let’s take a look at what’s happening in different sectors.

• Energy, data center, and battery storage continue to see strong demand. The AI race is driving global demand for data centers.  In the US, we have seen significant investments from tech companies and deal activity.  As data center development matures, there is a noticeable shift, with power demands being the primary driver of location and value.  These demands are pushing data center developers to integrate energy into their projects, and they are moving upstream to source and store energy to meet their needs.  Energy has become the bottleneck.

Q1 transactions included hybrid deals across real estate, power generation, and storage.  The size and scale of data center projects continue to grow above 1 GW.  Private credit and institutional debt financing have become the norm for these large investments.

• Office properties have seen tough times since the start of the pandemic.  It’s been six years since COVID caused a shift to remote work.  That trend has subsided; however, hybrid work has continued to impact the office sector.  As a result, many office properties have seen values decline, loans have been extended, and equity has been injected. 

The liquidation of distressed properties in what is deemed a “fire sale” has increased lately, with January and February sales in this category up 25% over the first two months of 2025.  Lenders are chasing repayment and sales and accepting the associated losses, but I suspect there might be more at play.  The rapid onset of AI development has jolted many into thinking that many office jobs will be impacted. Some hybrid and fully remote roles might never revert to on-site employees.  At these fire sale prices, office conversions can make economic sense. 

• Multi-family is seeing slowing rent growth and declining occupancy rates. This sector is also very market-specific, with Gateway and Midwest markets seeing the best of both.  The New York, San Francisco, and Chicago markets are performing the best, while Austin, Denver, and Tampa are performing the worst. 

• Industrialcontinues to be a resilient asset class.  Vacancy rates are expected to rise throughout 2026, while rent growth is expected to remain steady.  Deliveries continue to be driven by strong consumer spending.  If inflation decreases, industrial could outperform expectations.
• The Retail vacancy rate is slightly up in Q1 2026 at 4.4%.  It’s a tight, location-specific market.  Retail construction hit 53.2M square feet in Q1, with the Dallas-Fort Worth market on top, followed by Houston, Austin, Phoenix, and Las Vegas.  Asking rents rose slightly, showing strength in demand, with retail expected to hold steady for the remainder of the year.