US Real Estate Market Outlook 2026: Scare City or Scarcity? (Sagard)

Summary

• The current repricing cycle has lasted approximately 42 months from peak vs 30 months on average over the last three prior cycles, with prices falling 15-20%.p.2
• The U.S. real estate market has been in a stabilization phase since the end of 2024 and may plausibly continue sideways into 2026.p.2
• The U.S. commercial real estate industry enters 2026 with occupancy of 93% across all property sectors.p.3
• Major U.S. real estate indices reflect cap rates closer to 4.5%, with recent transactions occurring near 5.5%.p.3
• Valuation gaps of roughly 8-15% point to potential write-downs in certain property sectors, with office at the forefront.p.3
• Acquiring real estate within 24 months of a cycle bottom has historically led to strong outperformance.p.4
• Positive price cycles following a downturn of roughly 30 months have averaged 10+ years over the last three cycles.p.4

Key insights

1. Higher inflation persisted at levels not experienced since the 1970's, and many underestimated the sector's timeline for recovery.p.2
2. The current repricing cycle has lasted approximately 42 months from peak, versus 30 months on average over the last three prior cycles.p.2
3. Prices have fallen 15-20% in this cycle, less severe than the GFC but equal to or more significant than other recent downturns.p.2
4. New supply has moderated enough to hold effective rent growth near flat in 2026.p.3
5. With the U.S. 10-year Treasury near 4%, historical pricing spreads imply cap rates around 6%.p.3
6. The authors see 2026 as an attractive time to invest, based on market timing, cycle momentum and valuation pragmatics.p.4
7. Once the market bottoms, nominal returns tend to accelerate in years 3-9.p.4