Year-End 2025 Review & 2026 Commercial Real Estate Forecast
Following a three-hour year-end strategy session held Wednesday morning in Los Angeles with senior advisers, economists, and market forecasters, Mr. Kambiz Merabi, Principal of The Merabi Organization Group, directed that the following summary and outlook be shared with the firm’s trusted network.
Executive Summary
2025 was a year defined by restraint, recalibration, and resilience across the commercial real estate (“CRE”) sector. Elevated interest rates, a slower economy, and higher unemployment weighed heavily on new construction and transaction volume. However, by year-end, clearer signals of stabilization emerged.
Looking ahead to 2026, The Merabi Organization Group forecasts a year of normalization, selective recovery, and renewed opportunity, particularly for disciplined owners, long-term investors, and well-capitalized operators.
“If 2025 was a test of resilience, 2026 has real potential to reward it,” said Mr. Merabi.
Market Backdrop
- Slower economic growth and higher unemployment constrained development activity in 2025.
- Construction starts declined meaningfully across most asset classes.
- Despite policy uncertainty, tariffs, immigration tightening, and episodic financial market stress, the U.S. economy proved more resilient than anticipated.
- Artificial intelligence-driven productivity gains and capital investment provided an important counterbalance.
According to insights shared during a November industry seminar attended by Mr. Merabi, the U.S. CRE sector will enters 2026 with improved visibility, stabilizing fundamentals, and growing confidence across leasing and capital markets.
General Investment Outlook
Industry sentiment across global CRE leaders reflects cautious optimism:
- 83% of surveyed executives expect revenues to improve by the end of 2026 (down modestly from 88% last year).
- Capital expenditures are expected to remain disciplined, with many firms maintaining flat spending.
- 68% anticipate higher operating expenses in 2026.
- A majority expect costs of capital to improve as interest rates trend lower.
While overall sentiment is slightly softer than at the start of 2025, it remains well above 2023 levels, signaling that the market has moved past peak uncertainty.
“Capital is re-engaging—selectively and intelligently,” Mr. Merabi noted. “We are entering a new equilibrium.”
Capital Markets Perspective
- Capital flows resumed in the second half of 2025, with a strong emphasis on quality, data transparency, and operational efficiency.
- The deal environment increasingly rewards sponsors who combine data-driven insight with strategic conviction.
- Liquidity, technology adoption, and consolidation are reshaping how value is created in real assets.
Sector Focus: Office & Medical Assets
Given the firm’s concentration in office and medical office properties, the following trends are central to Merabi Organization Group’s 2026 outlook:
Office Market
- The office sector is widely believed to have bottomed.
- Early signs of price stability are emerging.
- National vacancy rates are expected to decline toward sub-18% levels as tenants:
- Reassess expiring leases
- Embrace hybrid work strategies
- Prioritize hospitality-driven, amenity-rich workplaces
A continued flight to quality is expected:
- Class A office buildings in many markets are approaching full occupancy.
- Office construction is at its lowest level in more than 30 years, constraining future supply.
- This environment supports:
- New Class A development in select markets
- Strategic acquisition and conversion of Class B and C assets into institutional-quality properties
“For large office users, if you find the right space, act decisively,” Mr. Merabi emphasized. “There is strong demand for high-quality space and not enough of it.”
Key Growth Markets Identified
The firm forecasts continued strength and absorption in:
- San Francisco & San Jose, California
- Austin, Texas
- Long Island, New York
- Atlanta, Georgia
- Dallas, Texas
- Nashville, Tennessee
These markets benefit from AI-driven expansion, diversified employment bases, and constrained new supply.
REITs & Public Markets
- Public-to-private REIT transactions and portfolio mergers are expected to accelerate in 2026.
- Listed REIT valuations continue to lag private market pricing, creating opportunities for:
- Strategic M&A
- Platform consolidation
- Scale-driven efficiencies
“Expect accelerated consolidation as AI exposes inefficiencies and capital concentrates,” Mr. Merabi stated. “Real assets are entering a new phase defined by intelligence, integration, and scale.”
According to industry forecasts, REIT stocks—laggards in 2025—may be positioned to outperform in 2026, driven by narrowing valuation gaps and improved capital market conditions.
Closing Outlook
As a private owner and long-term steward of real estate, The Merabi Organization Group views 2026 as a year that will favor:
- Operational excellence
- Balance sheet discipline
- Strategic acquisitions
- Technology-enabled decision-making
“Confidence is returning. Capital is flowing again. Leasing fundamentals are stabilizing. The next cycle is taking shape—and those who remained disciplined through uncertainty are best positioned to lead it.”