U.S. Economic Update

• Economic Growth
  • Real GDP is expected to grow approximately 1.8%-2.2% in 2026, reflecting a resilient but moderating economy.
  • Consumer spending continues to account for nearly two-thirds of U.S. GDP, supported by healthy household balance sheets.
• Federal Reserve & Interest Rates
  • The Federal Reserve meets at the end of July, with markets seeing a 33% chance of a rate hike.
  • Markets broadly expect higher interest rates in 2026, likely two hikes, possibly starting in September or October
• Inflation & Labor Market
  • CPI for June came in at 3.5% which is down from 4.2% in May – the first decline in annual inflation rate since January.
  • The unemployment rate remained at 4.2%, with 57,000 jobs added in June, reflecting a labor market that remains healthy but is gradually cooling.
• Financial Markets
  • Equity markets remain near record highs, supported by continued AI-related investment and resilient corporate earnings despite higher-for-longer interest rates.
  • Investment-grade credit spreads remain near long-term averages, supporting continued liquidity across corporate and commercial real estate debt markets.

Commercial Real Estate Update

• Capital Markets
  • Private-label CMBS issuance reached $70.3 billion through June 2026, an 18.1% increase from $59.3 billion during the same period in 2025, reflecting continued investor demand and improving capital markets.
  • CRE CLO issuance totaled $26.1 billion year-to-date, up 50.9% year-over-year, highlighting strong lending activity outside traditional conduit issuance.
• Property Fundamentals
  • Office fundamentals continue to improve gradually, with national vacancy declining to 20.1%, the second consecutive year-over-year decline, while four-quarter net absorption reached 14.3 million square feet, the strongest level since 2020.
  • Industrial remains the strongest-performing major property type, with vacancy falling to 6.9% in Q2 2026 and year-to-date net absorption totaling 113.6 million square feet. Retail vacancy remains historically low at 6.0%, supported by limited new construction.
• Debt Markets
  • Trepp’s overall CMBS delinquency rate declined to 7.35% in June, improving 20 basis points from May, largely due to the resolution of several large lodging loans.
  • Office remains the most stressed property type, with an 11.57% delinquency rate, while industrial continues to perform best at just 1.20%. Approximately $76.6 billion of CMBS hard maturities remain scheduled for 2026, with 39% maturing during the fourth quarter, keeping refinancing pressure elevated.
• Outlook
  • Improving capital markets, higher CMBS issuance, declining delinquency rates, and strengthening leasing fundamentals suggest commercial real estate transaction activity should continue to build through the second half of 2026.
  • Refinancing risk remains concentrated in older office assets, while industrial, retail, and high-quality multifamily properties continue to benefit from healthy investor demand and improving credit conditions.