Macroeconomic and Geopolitical Trends Impacting Commercial Real Estate
The recent 43-day federal government shutdown dominated headlines for much of the fall, casting a significant shadow over the economy and, consequently, the commercial real estate (CRE) landscape.
This shutdown has severely affected community development real estate, which typically hinges on government support and funding. Community Development Financial Institutions (CDFIs) and Community Development Entities faced substantial challenges, particularly in regard to housing programs. Although the administration has since reversed layoffs at the CDFI Fund made during the shutdown, the Office of Management and Budget (OMB) continues to withhold appropriated funds. Such constraints can delay crucial projects and investments that these entities rely on.
Adding to the uncertainty, the continuing resolution passed on November 12 extends FY2025 appropriations through January 30, 2026, leaving the door open for another federal shutdown. This looming possibility could stifle deal-making activity, as investor confidence wanes amid heightened economic and political risk, as noted by Ginger Chambless, Head of Market Insights for Commercial Banking at J.P. Morgan.
Moreover, federal policies regarding regulation, immigration, and inflation and interest rates are also crucial topics for investors as they navigate this tumultuous climate.
- Tariffs: Recent tariff adjustments have already impacted building material costs. Chambless pointed out that essential materials like steel, aluminum, and copper face up to 50% tariffs. Any further changes in trade agreements could escalate costs even further.
- Interest Rates and Inflation: Rising interest rates have notably complicated the landscape for the construction of multifamily units. As Kurt Stuart, Co-Head of Commercial Term Lending at Chase, mentions, it isn’t solely the tariffs affecting construction but the general climate of elevated interest rates. Despite a slight upswing in goods inflation, the Federal Reserve announced the end of its quantitative tightening measures this coming December, providing a glimmer of hope.
- Immigration: Changes in immigration policies will also warrant close monitoring, as labor shortages can elevate construction costs and impact project timelines. Chambless highlights that rising labor costs are a critical component of project budgets.
Office Sector Poised for Recovery
Despite the headwinds faced, a rebound in the office space sector might be on the horizon in key cities like Los Angeles and San Francisco, with Midtown Manhattan witnessing record rents in select office buildings.
JPMorganChase recently launched its new global headquarters at 270 Park Avenue in New York City. This cutting-edge office space includes a health and wellness center, fitness areas, medical services, and meditation rooms, catering to modern tenant demands. Additionally, the building is designed to be the largest all-electric tower in the city, emphasizing its commitment to sustainability and efficiency with features like a building automation system enhanced with over 100,000 sensors.
However, not all markets are faring equally. Areas like Denver, Chicago, and Washington, D.C. are still experiencing lower office usage rates, indicating they may require additional time to reach their new normal.
According to Burke Davis, Head of Real Estate Banking at J.P. Morgan, there is strong demand for high-quality office space, but lower-quality properties are at risk of becoming obsolete. This could mean that property owners will need to invest in upgrades or repurpose buildings for other uses.
Robust Multifamily Fundamentals
The multifamily sector remains strong, with debt markets showing resilience heading into 2026. Government-sponsored enterprises (GSEs), for instance, have received a notable 20.5% increase to their lending caps, facilitating abundant capital flow into multifamily assets.
Yet, the housing supply crisis continues to loom large. Over 22 million renter households are experiencing housing-cost burdens, with 12 million of those classified as severely burdened, as highlighted by the National Low Income Housing Coalition’s Out of Reach 2025: The High Cost of Housing report.
As Stuart points out, there is a glaring gap in affordable housing supply, with excessive demand existing particularly in major coastal cities. While the economic landscape is uncertain, any potential job losses could soften rents, though significant changes are not anticipated due to the structural dynamics of supply and demand.
In response to the affordability crisis, JPMorganChase has recently committed more than $40 million in philanthropic funding to bolster housing supply. This funding aims to support both urban and rural housing solutions, reflecting the firm’s commitment to expanding options for the underserved.
While federal policies undoubtedly influence apartment financing, local legislation tends to wield even greater impact. Recent moves in New York City, like unifying its digital mapping processes, are aimed at streamlining development efforts and expedient approvals.
Industrial and Retail Sectors Offer Opportunities
The industrial leasing landscape appears to soften compared to its post-COVID peak, but the sector retains robustness in urban infill locations and larger warehouse spaces, particularly in regions like California’s Inland Empire and Texas. The ongoing uncertainties related to tariffs, along with the trend of nearshoring and onshoring manufacturing, persists in driving demand for manufacturing facilities.
J.P. Morgan is keenly aware of these challenges and opportunities, launching its Security and Resiliency Initiative, a $1.5 trillion commitment aimed at bolstering critical sectors, including advanced manufacturing, energy independence, and strategic technologies.
The success of the industrial sector is closely intertwined with retail, which has been experiencing a notable upswing. Bolstered by strong consumer spending, retail demonstrates solid momentum as it enters 2026. Grocery-anchored stores and neighborhood shopping centers continue to thrive in areas where office utilization is on the rise.
“The retail sector is buoyed by positive trends amid limited new supply,” Davis noted, pointing to the strongest valuations seen in a decade across active shopping centers, excluding regional malls.
Cybersecurity and Fraud Protection as Imperatives
In 2024, an alarming 79% of organizations reported being targets of attempted or actual payments fraud, according to the 2025 AFP Payments Fraud and Control Survey Report. The vulnerability of organizations is underscored by the fact that checks remain the primary payment method subjected to fraud, with 63% of respondents indicating they faced check fraud last year.
In light of these figures, it is imperative for commercial real estate firms to integrate robust fraud protection measures into their payment processes. Keeping systems updated, investing in cybersecurity training, and adhering to sound cyber hygiene practices—such as segregating duties and employing multifactor authentication—will be crucial in safeguarding against these risks.
Bottom Line: The outlook for commercial real estate in 2026 is decidedly positive. With multifamily, industrial, and retail sectors showcasing resilience and a rebound in office markets in various regions, opportunities abound despite ongoing economic uncertainties.