When Will Rising Interest Rates Impact Pricing? Follow the Contracts.

Although Avison Young’s third-quarter 2026 U.S. investment sales report showed a 17.9 percent increase in dollar volume compared with the same period last year, the impact of rising interest rates, including the 10-Year Treasury yield having eclipsed 5 percent on Sept. 15, will take time to register. 

For multifamily, office, retail, development and industrial, there were $389.3 billion in sales nationwide during the first three quarters of 2026. Based on this, Avison Young is now softening the forecast for the full year to $520 billion, which would still be an increase over last year’s $483 billion, but falls short of this past cycle’s peak in 2021 of $805 billion. 

Understanding the data. Whenever I speak on the state of the market, I always preface the message by saying how sales reports are rear-view mirror indicators, meaning that by the time a sale is reported in a quarter, it was likely negotiated close to six months before. This is because it can take a month to negotiate the contract and then sign. 

Closing periods are trending for longer as well. Sometimes financing can take 90 to 120 days to secure, and then the deal can be reported and aggregated in the quarter. Thus, rate increases in September may not become evident in the sales figures until the first quarter of next year. 

Watching contracts. I think the best leading indicator of a sales market is how many contracts are being signed. Although forecasts have tempered sales estimates for the fourth quarter of 2026, I’m happy to report that we are still seeing transactions. 

Residential does a good job of tracking contracts that are signed. In New York, for example, the Olshan report reports how many luxury residential contracts are signed each month. Most of the residential listings on StreetEasy and through the Real Estate Board of New York are marked in contract close to their signing dates as well. 

However, commercial real estate is more complicated because I believe perhaps only a third of what’s ultimately sold was first listed on CoStar or LoopNet, which are the de facto commercial multiple listing services. Using Avison Young’s own activity as a proxy, we have seen transactions continue since Sept. 15. The New York City sales team signed six hard contracts, which is on pace with the monthly average. In suburban Atlanta, Milton Park, an office deal, went into contract at its original negotiated price. The Miami team closed a retail deal, Blue Lagoon Shoppes, for $28 million and a land deal for $13.2 million. In South Carolina, the team helped a client acquire an industrial building, 3560 State View Boulevard in Fort Mill, for $28.4 million. 

Why volume may hold. I don’t expect sales volume to drop dramatically, as sellers who were waiting for an interest rate cut before selling may now be more likely to transact, as are lenders. 

Some buyers who tried to cut prices by 10 percent to 15 percent when rates first jumped may have to underwrite more aggressively now that the 10-Year has dropped back below 5 percent. I also think this move signals that rates won’t keep increasing, and buyers who stay overly conservative in their underwriting could create a bid/ask spread too wide for deals to get done.

Different asset classes and performance. The impact from the rate increase will also depend on the property type and income profile. Longer-term, cash-flowing assets such as retail, where a lease of 10 years or more relies on cash-on-cash return, may see cap rates move in lockstep with borrowing rates. Office properties with shorter lease durations and multifamily should be less affected, especially in markets with exceptional rent growth.

It’s important to keep in mind that value has two levers: cap rate and net operating income. In New York and some of the other top markets like San Francisco, office rents are surging. Multifamily is more dependent on the market and supply/demand dynamics. For instance, in the Southeast, we are still seeing concessions to lease apartments, and pricing will reflect that. Where there is strong rent growth, I don’t think the cap rate expansion will be as dramatic. 

Remember that the 10-Year Treasury is just one index. Meanwhile, debt capital is plentiful and spreads remain tight, which should help soften the blow of interest rates

Although reports have tempered sales estimates for the fourth quarter of 2026, transactions have happened since rates started to climb. With signed contracts being one of the earliest indicators of where markets are heading, the ones coming through now suggest owners and lenders have accepted the volatility and are ready to deal. 

Pricing pressure will vary depending on the type of asset, as those that depend on long leases and steady yield could be more impacted, while apartments and offices in markets with fast-rising rents may be less affected. 

Sales reports will take until early next year to reflect any of this, so it can be worthwhile to monitor what transactions are taking place in the meantime.

James Nelson is principal and head of U.S. investment sales at Avison Young. This is the first in a regular column called Market Signals.