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Commercial real estate is ending the year with a strange duality: stronger pricing, higher deal volume, and more active lenders — while delinquency, special servicing transfers, and capital-stack stress continue to climb. Today’s signal examines this tension and frames the real question everyone is asking as we enter 2026: Is CRE actually recovering, or are we simply watching the system clear its mistakes?
➤ SIGNAL
The Market’s Split Personality: Rising Prices, Rising Distress
Commercial real estate today displays two opposing truths that both happen to be accurate.
On one side, the recovery narrative looks real.
Q3 2025 delivered one of the strongest transaction quarters since 2022, with more than $150 billion in volume, up roughly 24% year-over-year. Median CRE pricing in the U.S. climbed to its highest post-pandemic level, rising more than 14% year-over-year and nearly 3% quarter-to-quarter. Lenders that spent two years retrenching have returned with more originations, pushing 2025 lending activity back toward early-2023 levels.
On the other side, the stress indicators are flashing.
U.S. CMBS delinquency reached roughly 7.4% heading into Q4 — a cycle high — with office delinquencies setting new records and multifamily delinquencies surpassing 7%. Special servicing rates climbed above 10.8%, and many pandemic-era loans are maturing into debt costs materially higher than their original underwriting. Refinancing compression remains a defining theme of the year.
Both trends moving in the same direction isn’t a contradiction.
It’s the defining shape of this part of the cycle.
Why Volume Can Rise While Distress Rises Too
The return of deal activity and the rise in distress share the same root cause: the market is finally repricing.
For more than two years, buyers and sellers were misaligned. Buyers priced deals off today’s debt costs; sellers anchored to 2021 valuations. As forced sellers emerged — fund maturities, loan resets, liquidity needs — pricing became more realistic. With spreads finally visible, capital re-engaged.
At the same time, old capital stacks continue to unwind. Many loans originated between 2020 and 2022 were structured for a debt environment that no longer exists. Even assets with stable operations are facing DSCR pressure when refinancing at today’s rates. As those loans migrate toward maturity, they show up in special servicing transfers, extensions, and restructurings.
The result:
Rising deal volume = markets clearing at new prices.
Rising distress = capital structures adjusting to today’s rate regime.
Both can — and do — happen simultaneously.
What This Phase of CRE Actually Represents
The question “Is CRE back?” doesn’t have a single answer.
It depends on what part of CRE we’re talking about.
The portion of the market supported by real cash flow, rational leverage, and clear demand signals is operating again. Deals are happening, pricing is stabilizing, and the capital freeze is easing.
The portion of the market built on 2021 assumptions is not recovering — it is being corrected.
Many of the challenges surfacing now are not operational failures. They are structural mismatches between historic debt terms and today’s financing environment.
In that sense, 2025 is not a classic rebound.
It is a sorting process — distinguishing durable assets and capital structures from those that require restructuring.
This is less of a comeback and more of a recalibration.
➤ TAKEAWAY
What May Shape the Market in 2026
Looking ahead, industry data suggests a period defined by continued price discovery as additional maturities and repositioning efforts bring more assets to market under revised valuations, alongside a prolonged workout cycle for legacy loans due to higher refinancing costs and tighter underwriting standards. This may coincide with an expanding gap between properties supported by stable fundamentals and those facing structural or competitive challenges, while new development activity remains disciplined as interest rates, construction costs, and lender caution keep starts below historical norms. Across the industry, underwriting is likely to lean more conservative—emphasizing realistic rent growth, expense assumptions, reserves, and refinancing feasibility. Taken together, these dynamics point to neither a boom nor a downturn, but a broad market normalization as CRE continues adjusting from pandemic-era assumptions toward a more fundamentals-driven environment.
Commercial real estate in late 2025 is not a single narrative.
It’s a divided market: part recovery, part reconciliation.
The signal for 2026 is clear — the sector isn’t collapsing, but it isn’t surging either. It is transitioning, one capital stack at a time, into a more stable and sustainable footing.
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