Labor market conditions remained soft entering 2026, as subdued January hiring and sizable annual revisions revealed much weaker job growth throughout 2025 than previously reported. Inflation cooled to 2.4 percent in January, with shelter costs still driving much of the increase, though moderating rent trends suggest further easing ahead. After cutting rates three times late last year, the Federal Reserve paused in January, while long-term yields continued to rise, keeping financial conditions relatively tight. At the same time, economic growth slowed sharply in the fourth quarter, leaving 2025 as a year of more moderate expansion supported primarily by consumer spending.
Below is a summary of the performance of each major commercial real estate sector in January of 2026.
Office Properties
The office market showed continued but tentative stabilization in January, with demand trends improving from prior lows even as overall conditions remain fragile. Vacancy stayed elevated, and concessions remain common, though rent growth firmed modestly. Class A led leasing activity despite carrying the highest vacancy, Class B faced renewed softness but retained comparatively steadier fundamentals, and Class C continued to lose tenants while maintaining the tightest vacancy among the tiers.
Multifamily Properties
The multifamily market continues to benefit from steady demand, though elevated supply from prior development cycles is still pressuring fundamentals, keeping vacancy high and rent growth subdued. Absorption has moderated but remains relatively stable, while deliveries continue to outpace demand, extending the imbalance. Class A and B conditions have softened with limited pricing power, while Class C maintains comparatively firmer rent growth despite ongoing tenant turnover. Overall, the sector remains in a gradual inventory digestion phase.
Retail Properties
Retail remains in an adjustment phase following structural shifts tied to e-commerce and the pandemic. Demand has been negative for several quarters, and new supply continues to weigh on fundamentals, though rent growth still leads major property types and vacancy remains comparatively low. General retail has been the most resilient with the tightest vacancy, while neighborhood centers and malls have experienced the sharpest pullbacks despite selective rent strength across formats.
Industrial Properties
Industrial fundamentals continue to normalize following the sector’s peak, with demand moderating and new supply still weighing on vacancy and rent growth. Although completions continue to exceed leasing activity, the imbalance has narrowed compared with prior quarters, pointing to gradual stabilization. Logistics properties remain the primary source of demand, while specialized facilities show selective growth, and flex space stays under pressure. Rent gains have slowed across segments, reflecting a market that is still adjusting but moving toward a more balanced phase.
Hotel Properties
Hospitality performance remained stable in January 2026, with occupancy at 62.2%, still roughly 4% below pre-pandemic levels and a percentage point lower than previous years, as remote work and softer corporate travel continue to weigh on major business markets. Even so, revenue fundamentals strengthened, with both ADR and RevPAR well above 2019 benchmarks, supporting healthy profitability. Investment activity cooled, however, as elevated borrowing costs and ongoing economic uncertainty tempered investor appetite.
Source: “February 2026 Commercial Real Estate Market Insights”
