Commercial Real Estate Sentiment Dips as Interest Rate Outlook Weakens

Fall 2026 industry survey reveals growing caution among commercial real estate leaders, despite optimism surrounding rents, occupancy and development activity.

Commercial real estate executives are becoming increasingly cautious about the industry’s near-term outlook as rising interest rates, construction costs and uncertainty in capital markets create new challenges for development and investment.

According to the Fall 2026 Commercial Real Estate Sentiment Index released by the Commercial Real Estate Development Association (CREDA), industry leaders anticipate a modest deterioration in overall market conditions during the next 12 months, even as expectations for rents and occupancy remain positive.

The index declined to 48 from 52 in March 2026, marking its first reading below the neutral threshold of 50 since September 2023. A reading below 50 indicates that respondents expect industry conditions to weaken over the coming year.

The findings highlight an increasingly complex environment for commercial real estate development, with implications for construction activity, project financing and investment decisions across the Carolinas and the broader United States.

Rising Costs and Capital Constraints Create Headwinds

Among the survey’s most significant findings is a notable decline in confidence surrounding capital market conditions.

Developers and building owners expect both equity and debt financing to become somewhat less available over the next year. They also anticipate rising capitalization rates, which could put additional pressure on property valuations and investment returns.

Interest rates emerged as a particularly significant concern. The survey’s interest rate favorability score dropped sharply to 31 from 52 in March, representing the largest decline between surveys since April 2022.

Construction costs are another growing concern.

Respondents expect both construction material prices and labor costs to increase more rapidly than previously anticipated. Their outlook for these two cost categories is now more pessimistic than at any point since the April 2022 survey.

For contractors, developers and project owners, these trends reinforce the importance of disciplined preconstruction planning, accurate cost forecasting, procurement strategies and early collaboration.

Higher financing and construction costs can significantly influence whether projects advance, are redesigned or are postponed.

Property Fundamentals Remain Encouraging

Despite concerns about financing and development costs, the survey offers several encouraging signals.

Commercial real estate leaders expect both face rents and effective rents to increase more rapidly than anticipated earlier this year. Respondents also continue to forecast improvements in property occupancy rates.

These expectations suggest that underlying demand for commercial real estate remains relatively resilient, even as the economics of new construction become more challenging.

Developers and building owners also anticipate an increase in the dollar volume of real estate transactions and projects over the next 12 months. Respondents expect employment within their own organizations to grow modestly.

The combination of improving property fundamentals and more challenging capital conditions could influence investment strategies, potentially favoring acquisitions and improvements to existing properties over ground-up development.

Industrial and Multifamily Lead Investment Interest

Industrial and multifamily properties remain the most attractive sectors for commercial real estate investment, according to survey respondents.

Most participants expect to concentrate their activity in one of these two property types during the coming year.

Data centers and retail properties represent the next highest areas of interest.

For the Carolinas, these findings are particularly relevant given the region’s substantial industrial development base, continued population growth and expanding interest in digital infrastructure.

Industrial facilities, logistics properties, advanced manufacturing and data centers have been important sources of construction opportunities throughout North Carolina and South Carolina.

However, the survey suggests that favorable market fundamentals alone may not be sufficient to advance every proposed project. Financing costs, construction economics and investment returns will continue to play a critical role in determining which developments move forward.

What the Outlook Means for Construction

The latest sentiment results point toward a more selective development environment rather than a broad retreat from commercial real estate investment.

For construction firms, this distinction is important.

Projects with strong tenant demand, favorable financing arrangements and predictable construction costs may continue to advance. Developments facing tighter margins or greater uncertainty could encounter longer decision-making cycles, additional value engineering or delayed starts.

The findings also reinforce several priorities for construction executives:

• Preconstruction and cost certainty: Owners will increasingly value reliable estimates, early trade partner engagement and strategies that reduce exposure to material and labor cost escalation.
• Project financing awareness: Contractors should closely monitor capital market conditions and understand how financing constraints affect their clients’ development pipelines.
• Market diversification: Industrial, multifamily and data center opportunities may offer relative strength, but project viability will vary by geography, ownership structure and financing.
• Productivity and innovation: Prefabrication, modular construction, digital planning and improved project delivery methods can help address cost pressures.
• Client relationships: Strong relationships with developers, owners and capital partners will be increasingly important as investment decisions become more selective.

A Market Defined by Cautious Optimism

“The CRE Sentiment Index gives us an early read on where industry conditions are headed,” said Marc Selvitelli, CAE, CREDA president and CEO. “This fall, respondents are telling us that property-level performance remains strong, while uncertainty around capital markets, costs and policy is shaping when and where new development makes sense.”

The findings underscore a central challenge facing commercial real estate and construction leaders: demand for space and investment opportunities may remain healthy, but the cost of delivering new projects is becoming more difficult to manage.

For the construction industry, the coming year may be characterized less by a shortage of potential opportunities and more by increased scrutiny over which projects make financial sense.

Companies that demonstrate cost certainty, execution reliability and the ability to help owners navigate an increasingly complicated development environment may be better positioned to compete.

About the Survey

The CREDA Commercial Real Estate Sentiment Index is conducted twice annually to measure expectations for commercial real estate conditions over the following 12 months.

The Fall 2026 survey was distributed to approximately 10,000 CREDA members across the United States between September 15 and September 23, 2026.

A total of 401 industry professionals representing 299 companies participated. The composite index carries a reported margin of error of 4.9%.

The report was authored by CREDA Research Analyst Max Shpilband.

The full report is available through the CREDA Research Foundation.