How a Rare Rate-Driven Downturn Is Rewriting the Core Playbook for 2026 Article originally posted on Globe St. on December 23, 2025 The commercial real estate industry is emerging from what one large portfolio manager describes as one of only three “material repricings” in the past half-century, but this one looks different from the early 1990s and the global financial crisis. Rather than being driven by overbuilding and excessive leverage, the most recent downturn has been tightly linked to a sharp move higher in interest rates—and its recovery will be shaped by the path of policy rates and the renewed importance of quality in core portfolios. A Different Kind of Downturn On a recent episode of CBRE’s podcast, Josh Myerberg, managing director and head of portfolio strategy for core and core-plus real estate in the Americas at J.P. Morgan Asset Management, laid out this thesis in detail. Myerberg and his global team oversee roughly $79 billion in assets on the firm’s flagship real estate platform, giving him a front-row view of how capital allocators and operating partners have responded to a rate shock that has repriced nearly every segment of the market. Myerberg noted that ODCE—the NCREIF Open-End Diversified Core Equity index—turned positive five quarters ago and has since been “bouncing along the bottom,” with returns primarily driven by income rather than appreciation. To understand how this episode differed from prior downturns, he said his team went back to the early 1990s and the global financial crisis and found a typical pattern in those periods: too much supply and excessive leverage. “We can debate whether either of those manifested in this cycle, but I don’t really think so,” he said, arguing that “generally not what manifested this cycle was rates.” Historically, Myerberg said, “real estate returns have been relatively uncorrelated to rates,” but the recent drawdown has been an exception, with performance “almost perfectly correlated to higher interest rates.” That unusual relationship is central to his optimism about 2026, because it suggests that the drag on values has been more a function of discount-rate pressure than of impaired fundamentals. “Fundamentals are good, and the thing that has been holding us back as an industry has been higher interest rates,” he said. “We’ve gotten two Fed cuts in last month, plus our house view is that we’re going to get another two to three Fed cuts by the middle of next year.” Signals for a 2026 Recovery The firm has also examined a series of leading indicators, including what Myerberg described as “really wonky, forward-looking metrics like inflection points and debt mark to market and ODCE and the MOVE index,” a measure of bond market volatility. While he joked that he had only learned about the MOVE index recently, he said that “most of them seem to point to appreciation accelerating by the middle of next year.” Taken together, those signals underpin his view that 2026 “is set up to be a very good year” for core real estate as rate pressure eases and capital begins to reprice risk. That backdrop is already changing how institutional investors think about core and core-plus portfolio construction. Myerberg argued that the recent zero-rate period flattened return dispersion and made sector allocation the dominant driver of performance, to the point where “a monkey could have invested in commercial real estate and made money” simply by overweighting industrial and residential at the expense of retail and office. As policy rates normalize and the rate shock recedes, he expects a return to an environment “where quality matters” more consistently across sectors. Flight to Quality and the Role of Core Funds In Myerberg’s view, that shift will favor seasoned open-end core funds and listed REITs that have spent decades curating portfolios of higher-quality assets in markets where tenants want to be. “The way to access quality is through funds that have existed for 15, 20, 30, 40, 50 years and have been able to curate a portfolio of the highest quality assets,” he said, adding that “you’re not going to get that in a new core-plus fund” or a recently launched closed-end value-add vehicle. He expects “a flight back to quality” as investors reassess the trade-offs between yield, perceived exit liquidity and long-term NOI growth in a rate-driven recovery. Capital flows into core vehicles have not yet fully turned, but Myerberg sees signs that the market is moving past the worst of the redemption cycle. He pointed to ODCE redemption queues, noting that after the global financial crisis, it took six quarters to get from peak redemptions to zero. In contrast, in the current episode, the industry is about five quarters past peak and “about 35 percent from those peak levels.” “ It’s good, but we are not to a point where you’re seeing capital formation in excess of the amount that people that want to get out,” he added. Nonetheless, Myerberg expects core and core-plus to “come rolling back next year,” driven by what he called “math.” Since April, he noted, “the U.S. dollar got devalued by 10 percent,” while the United States remains a perceived safe haven, there is “so much pent-up demand to buy real estate,” and “too much money has been allocated to traditional fixed income.” In his view, those factors “add up to a lot of money coming back into core” as investors rebalance away from lower-yielding bonds and revisit real estate as an income and diversification tool. Rethinking Secondary Markets and Yield That capital, he argued, will be more discriminating than in the last cycle, particularly in secondary markets and higher-yielding segments. Myerberg pushed back on the notion that secondary markets offer a straightforward path to higher returns in a still-elevated rate environment, calling out what he sees as a risk of value traps. “What you were trading off historically has been income for the prospect of appreciation,” he said, emphasizing that “NOI growth is what ultimately matters” and that owners should “put yourself where tenants want to be” if they want to drive appreciation over time. That emphasis on income growth and tenant demand is closely tied to how a rate-driven downturn reshapes pricing discipline. In a world where exit cap-rate compression is less of a given, Myerberg suggested, underwriting must lean harder on embedded NOI growth and the durability of demand in specific buildings and submarkets, not just on headline yield spreads. That logic reinforces his view that core strategies centered on higher-quality assets in primary markets will be better positioned than strategies that rely on yield premia in riskier locations. Positioning Portfolios Ahead of the Pivot For existing core and core-plus managers, the shift also raises practical questions around capital deployment and portfolio pruning in the run-up to 2026. With ODCE total returns still income-heavy and appreciation poised, in his view, to accelerate as rates fall, managers face a balancing act between selling into a thin bid and holding through what could be a relatively rate-sensitive upturn. Myerberg’s comments suggest that portfolios already skewed toward higher-quality assets may focus more on incremental repositioning and tenant-focused asset management than on wholesale sector rotation. The outlook he described on the CBRE podcast rests on an assumption that policy volatility will subside and that the rate path will remain supportive of a gradual recovery in valuations. He acknowledged that policy shocks—such as the recent tariff episode that slowed foreign investor and endowment activity after a period of building momentum—can temporarily disrupt capital formation, but characterized those shocks as transitory rather than structural. In his telling, the more durable forces are the repricing of risk after a rate shock, the return of quality differentiation and the reemergence of core funds as key conduits for global capital seeking long-term real estate exposure.