Commercial Real Estate Investment’s Curious Rise Amid Higher Inflation, Rates

Last week, the Federal Reserve raised interest rates by a quarter point while signaling another hike later this year.

It seems like just yesterday that everyone in commercial real estate was bemoaning high interest rates, delaying big investments and transaction activity until the Fed saw fit to lower its benchmark rate from the 5.25 to 5.5 percent peak it had reached in 2023. 

To the relief of many, those rates have come down a bit, hitting a recent nadir of 3.5 to 3.75 percent in December 2025, before the raise last week bumped them to 3.75 to 4 percent. 

Even the lower December rate, though, was still markedly higher than the rates the industry had previously adapted to for many years until 2022, and now hoped for again. And, this time, the higher rate is accompanied by stubbornly high inflation.

But, even with the knowledge that this latest rate hike was likely, the mood had clearly shifted. 

The smaller degree of clamor on the subject of rates reflected resignation followed by adjustment, the relative quiet really the sound of an industry adapting to a changing world and new economic realities with surprisingly little fuss.

Given the state of the news and the economy of late, with tariffs, the war in Iran, and stubbornly high interest and inflation rates all making instability feel more and more like the norm, commercial real estate’s investment community could have been forgiven for keeping its collective head in the sand and its investment dollars close to the vest.

But that’s not what the commercial real estate investment community has been doing. 

Instead, CRE investment activity has been behaving more like it might be expected to in a much more stable economic and geopolitical world.

A report from Avison Young noted that investment sales volume for the first half of 2026 totaled $233.6 billion, a 14.7 percent increase from the first half of 2025 and the “strongest first half of the year since 2022,” with the first-quarter total of $120 billion in volume marking a 25.5 percent increase year-over-year, and the highest first-quarter total in four years.

And an August 2026 report from JLL said that “global direct investment carried strong momentum into the second quarter” while noting that “activity in the Americas increased by 26 percent, with the U.S. performing strongly.” 

So why is a time of such global turmoil and economic uncertainty having seemingly little to no effect on CRE investment, up until now at least?

It could be that with so many whiplash-like, world-changing events happening so quickly, instability has become the new stability.

Jay Neveloff, partner and chair of U.S. real estate for the law firm HSF Kramer, said he believes that part of the answer might derive from the very definitions of the stability CRE investors seek, starting with the Fed’s 2 percent baseline expectation for inflation.

“The whole concept of having a 2 percent guideline really makes no sense in our nuanced world,” said Neveloff. “If you look at what’s going on, we’ve got a war. Oil prices past $100 a barrel. Crazy things that we have no control over. What the Fed does and doesn’t do doesn’t address that issue.”

Neveloff believes that unlike in recent years, which saw screams about desired rate cuts from seemingly every corner, the relevance of rates to the investment community overall has diminished, at least as far as quarter- or half-point adjustments are concerned.

“I don’t think it matters. I really don’t,” said Neveloff. “The clients I talk to that are looking at deals are not looking at 25 or 50 basis point spreads. They’re just not. They’re looking at: Do they like the asset? Do they think there’s value? Do they think the value is going to increase? They’ll look at what they think the exit strategy is, and we’re learning not to be guided by projections.”

Part of this shift in outlook, according to Neveloff, derives from the expansion of the investment economy overall.

According to the Federal Reserve, “the net worth of households and nonprofit organizations increased by $12.8 trillion in the second quarter of 2026,” with Yahoo Finance characterizing it as the 11th straight quarter of gains, and “a streak that has added $43.4 trillion to household balance sheets and pushed cumulative wealth creation since the 2020 pandemic to $83.9 trillion.”

And a February 2026 private equity report from Bain & Company made note of a “mountain of available capital,” with “global dry powder sit[ting] at a towering $1.3 trillion.”

With all this money available, said Neveloff, it has to go somewhere, making its own case for continued investment.

“There’s more disposable income, more wealth being created, and more money being invested than there ever was,” said Neveloff. “People have to do something with their money, and they don’t want to put it in T-bills for the most part. They want to invest it. So with more money to invest, people are less influenced by what the interest rates are. You have to put the money to work.”  

For all these reasons, Neveloff called the low interest rates of the past “dinosaurs” and said that investors, understanding that rates will likely never again be as low as they were five or 10 years ago, are moving full steam ahead for the simple reason that the alternative would be permanent inertia.

“I don’t believe that interest rates are driving the boat for really smart investors,” said Neveloff. “The people doing deals now are opportunistic. If 50 basis points makes a difference in doing a deal or not, then it’s not the right deal to do. I think more thoughtful equity investors are looking past that. They’re looking for value. They’re looking for what’s the next 10-year horizon, and different investors have different views of horizons.”

Neveloff noted, for example, that private equity firms have been making their investment vehicles more flexible, turning away from automatic eight- to 10-year investment horizons because “some of the assets they buy shouldn’t be sold in eight to 10 years.”

Alex Ern, senior manager of market intelligence for U.S. capital markets for Avison Young, reinforced the value of a longer-
term, larger-picture strategy.

“Generally, long-term holders are buying good assets with solid fundamentals attached to them,” said Ern. “They’re underwriting a generational hold.”

Ern pointed to Avison Young research that reinforces this point for multifamily investment.

“If you just look back 20 years, use a $50 rent as a round number and look at traditional 2.5 percent, 2.75 percent and 3 percent escalations, and peg that $50 to the consumer price index (CPI), at the end of 20 years, the 2.5 percent escalation in CPI will be almost identical, and 2.75 and 3 percent will have both outpaced inflation,” said Ern. “If you look on a 20-year horizon, landlords have generally outperformed as it relates to what they’re getting in terms of rent escalations now. That has not been the case recently, but, when you talk about a long-term horizon, it contextualizes things in an important manner.”

That said, with this newest rate hike and more on the way, Ern does see the possibility of increased deal activity as a result.

“With the possibility of additional rate hikes still on the table, many investors and lenders could consider executing transactions rather than waiting on the sidelines,” said Ern. “Capital sources with deployment mandates and pressure to put money to work may actually accelerate investment activity, recognizing that borrowing costs could become even more expensive in the months ahead.”

Thomas Lee, president and co-head of CBRE’s U.S. and Canada capital markets business, referred to the interest rate peak of 2023 as a “complete reset” for the commercial real estate market, and describes current investor attitudes as being driven by a bit of long-term optimism.

“The volatility in rates and inflation are heavily geopolitically driven, given spikes in oil and the long-term rates,” said Lee. “Investors we’re talking to continue to invest because they generally believe that [the war in Iran] is going to be a short-term conflict. We don’t normally see geopolitics derail our real estate cycle. It’s only when you get extended geopolitical issues that it starts to really hit. This year so far, investors have tended to look through those tensions with a bit more of a long, three- to five- to seven-year view.”

But, for the short term, Lee believes the most recent rate hike could change the calculus somewhat for investors.

“While the rate hike was expected, it shifts the math on what buyers can or are willing to pay, creating a gap between buyer and seller pricing expectations,” said Lee. “The result is a widening bid-ask spread that will moderate the pace of recovery in Q4 and likely into part of 2027. As investors gain clarity on the new steady state and prices adjust accordingly, momentum should build again.”

Rich Hill, senior managing director and global head of real estate research and strategy at Principal Asset Management, reminded us that for all the public desire for low rates as a result of the recent increases, the low rates the industry had acclimated to had never really been the norm.

“Since the beginning of 2010, we have dealt largely with an environment that saw historically low interest rates and a falling inflation regime. Global central banks made money very, very cheap,” said Hill. “That last cycle environment was actually an anomaly. It was the exception.”

But, even if higher rates are more traditional than we’ve come to expect — and Hill reinforced that real estate has often done well as a safe-haven investment during times of high interest rates and inflation — recent years have produced a different result due to more dangerous economic conditions, he said.

“Commercial real estate has not, and will never, do very well in a stagflationary regime — where interest rates are rising and growth is slowing — which is really what we dealt with for the past several years,” Hill said.

But, with certain economic indicators, such as consumer spending and the August jobs report, showing positive signs, the investment community seems content to embrace stability wherever it can be found.

Danny Kaufman, a senior managing director and national debt platform leader for JLL Capital Markets, positions investors as finding the upside to today’s economy where they can. They’re using that as the basis for keeping commercial real estate investment flowing at a time when uncertainty could otherwise be expected to stunt the industry’s deal flow.    

“Above-target inflation can be negative, but it could also be benign as it relates to commercial real estate transaction activity,” said Kaufman. “It depends on whether it’s highly volatile or not, and whether there’s an underlying dynamic of positive economic growth. We’re in a market right now with a strong and stable underlying economic base, and investors have adjusted their expectations of the market.”

Larry Getlen can be reached lgetlen@commercialobserver.com.