Higher interest rates continue to shape the commercial real estate (CRE) market, but their impact is more nuanced than rising borrowing costs alone might suggest. Cushman & Wakefield’s September 2026 Market Matters report examines how the latest interest rate environment is affecting CRE lending, investment activity and property fundamentals—and identifies several property sectors demonstrating resilience.
Despite rising Treasury yields and expectations for additional Federal Reserve rate hikes, Cushman & Wakefield reports that CRE lending and investment activity have remained relatively strong. At the same time, improving economic fundamentals and declining new construction are contributing to stronger net operating income (NOI) growth and increasing investor focus on high-quality assets.
Key Findings
- CRE lending remains active despite higher interest rates, with bank CRE loan balances increasing and CMBS issuance up year-over-year.
- Markets are pricing in significantly more Federal Reserve tightening than the Fed’s own projections currently indicate.
- Improving leasing demand and declining construction deliveries are supporting NOI growth across several property sectors.
- Data centers, modern distribution facilities, senior housing and luxury multifamily are among the property segments demonstrating notable investment activity.
How Are Higher Interest Rates Affecting Commercial Real Estate?
The Federal Reserve raised the federal funds rate target range to 3.75%–4.00% in September. Following the decision, Fed Chair Warsh emphasized the strength of the U.S. economy, persistent inflation and the Fed’s commitment to returning inflation to its 2% PCE target.
However, Cushman & Wakefield highlights a notable difference between the Federal Open Market Committee’s projections and financial market expectations.
The median FOMC participant expects one additional 25-basis-point increase by the end of 2026, followed by no change in 2027 and gradual rate cuts beginning in 2028. None of the 19 contributors projected the federal funds rate to end 2028 above the 4.00%–4.25% range.
Markets are anticipating considerably more tightening. At the time of Cushman & Wakefield’s report, futures pricing implied three additional 25-basis-point increases over the following six months and four over the following 12 months.
Cushman & Wakefield notes that this aggressive pricing could leave room for interest rate expectations to moderate if economic data slows or geopolitical tensions ease. Even if the Fed ultimately raises rates more aggressively, tighter monetary policy could eventually slow growth and reduce longer-term inflation expectations, potentially placing downward pressure on longer-term Treasury yields.
Is CRE Lending Slowing as Interest Rates Rise?
Not significantly, according to the data highlighted by Cushman & Wakefield.
During the six weeks ended September 16, total outstanding CRE loans held by banks increased by $13.7 billion. That was nearly double the $7.4 billion increase recorded during the comparable period in 2025.
Commercial mortgage-backed securities (CMBS) issuance has also remained active. From early August through September 25, issuance totaled approximately $30 billion, up 17% year-over-year.
Credit spreads have demonstrated resilience as well. Conduit spreads on 10-year, AAA-rated CMBS loans were within five basis points of their lows immediately before the launch of Operation Epic Fury, while BBB- spreads remained in line with their six-month average.
While higher benchmark rates have increased the cost of financing, Cushman & Wakefield’s data does not indicate a broad retreat in CRE credit activity.
How Is the Economy Affecting CRE Fundamentals?
The recent increase in interest rates has occurred alongside a surprisingly resilient U.S. economy, which Cushman & Wakefield identifies as an important part of the CRE outlook.
Corporate profits increased 28% during the first half of 2026 compared with the first half of 2025. In August, the ISM services new orders index reached 60.1, its highest level in two-and-a-half years.
According to the report, these are positive leading indicators for leasing demand, which is already accelerating across most property types.
Improving demand is also coinciding with declining commercial construction deliveries. Cushman & Wakefield reports that this combination has helped drive same-store NOI growth for the NAREIT All Equity REIT Index higher for three consecutive quarters.
The largest REITs in the industrial, office and multifamily sectors have also increased their 2026 NOI growth guidance from projections made at the beginning of the year.
Could Higher Interest Rates Benefit Existing CRE Properties?
Higher interest rates make construction financing more expensive, but Cushman & Wakefield notes that this could further limit future supply and potentially strengthen the competitive position of existing properties.
Construction starts in the office and multifamily sectors were already declining before the latest increase in SOFR, the benchmark rate for many commercial construction loans. If higher financing costs persist, Cushman & Wakefield suggests they could push a meaningful recovery in new deliveries further beyond 2028 and potentially slow the emerging recovery in industrial development.
Fewer new developments could mean less future competition for existing properties, particularly at a time when leasing demand is improving.
This dynamic could be particularly significant for newer and higher-quality properties. Cushman & Wakefield notes that tenants have demonstrated a pronounced “flight to quality” across multiple CRE property types during this cycle.
Which CRE Property Types Are Attracting Investors?
To identify which property types are proving particularly resilient, Cushman & Wakefield examined investment sales activity from June and July 2026, when the 10-year Treasury yield spent much of the period at or above 4.5%.
Several property subtypes generated strong investment volumes compared with both 2025 and average June and July volumes during the three years preceding the pandemic.
The common factor was not necessarily lower pricing or wider cap-rate spreads. Cushman & Wakefield found that investors appeared particularly attracted to properties with the potential for sustained tenant demand, supported by building quality, demographics, AI-related uses or a combination of these factors.
Data centers were a notable example, with June and July sales volume exceeding 2025 levels by more than $4.5 billion.
Newer bulk distribution centers also recorded strong activity. Post-2010-built properties are benefiting from growing warehouse automation requirements, AI-related demand and a shortage of large-format distribution space.
Senior housing demonstrated similar resilience. Sales volume increased by more than $1.7 billion compared with the same period in 2025. Cushman & Wakefield highlights favorable demographics as an important driver: the U.S. population aged 80 and older is expected to increase by approximately four million people by 2030, while fewer than 20,000 senior housing units are currently under construction nationwide.
What Is Happening in the Multifamily Investment Market?
Cushman & Wakefield’s research points to an important distinction emerging within multifamily: the highest-end luxury apartment properties are attracting investment even as more commodity Class A properties experience weaker transaction activity.
Luxury apartments in both suburban and CBD/urban markets recorded significant increases in sales volume during June and July, while their more commodity Class A counterparts experienced declines.
The report suggests investors see newer, higher-quality multifamily properties as better positioned as new supply wanes. These assets may be able to attract residents from older competing properties while requiring less capital for renovations and other improvements.
The trend reflects a broader theme identified throughout Cushman & Wakefield’s research: investors are increasingly differentiating not only among CRE property types, but also among individual assets based on quality, future capital requirements and their ability to generate sustained NOI growth.
What Does Cushman & Wakefield’s Research Suggest About the CRE Outlook?
Cushman & Wakefield’s September Market Matters report depicts a commercial real estate market that remains active but is becoming increasingly selective.
Higher interest rates continue to create challenges for borrowers, investors and developers. At the same time, CRE lending remains active, property fundamentals are improving in several sectors and declining new construction could further constrain future supply.
The investment activity highlighted in the report also demonstrates where capital is finding opportunity. Data centers and modern distribution facilities are benefiting from technology-related demand, senior housing from demographic trends and limited construction, and high-end multifamily from investors’ increasing focus on asset quality.
Across these sectors, Cushman & Wakefield identifies a common theme: investors appear increasingly focused on properties with strong underlying demand, limited competitive supply, manageable future capital requirements and a clear path toward sustained NOI growth.
Read Cushman & Wakefield’s full September 2026 Market Matters report for additional analysis, data and charts.
The information provided in this article, including, without limitation, any opinions, predictions, forecasts, commentaries or suggestions, is for informational purposes only and should not be construed to be professional or personal investment, financial, legal, tax or other advice.