Economic conditions remained mixed in May, with payroll growth holding steady and prior months revised higher, while unemployment stayed at 4.3%. Job gains continued to show uneven industry performance, led by leisure and hospitality, local government, and health care, while financial activities declined. Inflation increased to 4.2%, driven largely by renewed energy price pressures, while core CPI remained more moderate. The Federal Reserve kept rates unchanged at its last meeting in April, while the 10-year Treasury yield rose to 4.48% in May, keeping borrowing conditions tight for commercial real estate. GDP growth was revised lower to 1.6% in Q1, but remained above the prior quarter, with underlying private demand still positive despite elevated inflation.
Below is a summary of the performance of each major commercial real estate sector in May of 2026:
Office properties
The office market continued to move toward stabilization in May, with annual demand turning positive after a prolonged period of occupancy losses. Stronger absorption helped lower the vacancy edge and supported modest rent growth, though the recovery remains gradual and uneven. Class A continued to drive leasing despite v and Class C retained the tightest vacancy while still recording tenant move-outs.
Multifamily properties
The multifamily market maintained steady demand in May, with absorption still above long-term norms despite slowing from last year. Supply remains the main constraint, as deliveries continued to exceed absorption, though the gap narrowed as completions declined. Vacancy edged lower, and rent growth improved modestly, but elevated supply continues to limit pricing power. Across classes, Class A showed gradual stabilization, Class B remained softer, and Class C retained the strongest rent growth despite continued tenant move-outs.
Retail properties
Retail continued to adjust to structural shifts tied to e-commerce and the pandemic, but fundamentals remained tight relative to other property types. Demand strengthened in May, while rent growth continued to lead major sectors despite some moderation, preserving retail’s pricing advantage. Vacancy edged higher as new supply continued to enter the market, and limited inventory removal could add modest upward pressure if demand remains uneven. General retail remained the strongest segment, while Malls and Neighborhood Centers continued to record move-outs, though losses moderated significantly from a year ago.
Industrial properties
Industrial fundamentals continued to normalize in May as the sector worked through supply that had been added after its 2022 peak. Demand improved meaningfully from a year earlier, and the supply-demand imbalance narrowed sharply, signaling progress toward rebalancing. Still, deliveries continued to exceed leasing activity, keeping vacancy elevated and rent growth restrained. Logistics remained the primary source of absorption, specialized facilities showed selective strength, and flex space remained under pressure with continued move-outs.
Hospitality properties
Hospitality conditions remained stable in May 2026, although occupancy continued to lag both pre-pandemic levels and recent-year trends as remote work and softer corporate travel weighed on business-focused markets. ADR and RevPAR remained well above 2019 levels, helping support operating performance. Investment activity stayed restrained, with elevated borrowing costs and economic uncertainty continuing to limit investor demand.
