Underallocated Investors Eye CRE as Market Dynamics Shift Article originally posted on Globe St. on March 10, 2026 After several years of low returns, investors have shown greater interest in commercial real estate. While 2023 and 2024 were challenging years, the downturn was largely capital markets-driven, shaped by higher interest rates and constrained liquidity rather than by deteriorating underlying supply-and-demand fundamentals. In 2026, improving debt capital markets are beginning to create a clearer path forward. A revival is underway even as overall transaction volumes remain somewhat muted. A greater-than-normal share of activity today consists of refinancings rather than new acquisitions, underscoring that liquidity rather than fundamentals has been the primary pressure point. In that context, stabilized real estate income is increasingly viewed as a compelling option. “The commercial real estate sector has certainly faced a challenging environment, as reflected in key industry metrics,” Jen Wichmann, US head of research and strategy at LaSalle, told GlobeSt.com. The Expanded NCREIF Property Index (NPI) recorded seven consecutive quarters of negative total returns between the fourth quarter of 2022 and the second quarter of 2024. Additionally, according to Green Street’s Commercial Property Price Index, overall CRE values declined 22% from their peak in April 2022 to December 2023 and remain 16% below that peak. The office sector has experienced the most significant correction, Wichmann said, with values down 35% based on Green Street’s numbers. Expanded NPI capital returns in the office sector continued to decline through last year, even as the overall index stabilized. The latest PREA forecast points to a 1% appreciation return in 2026. “The data suggest we’re at an inflection point in the real estate market, and this is a good time for early-cycle investing,” according to Wichmann. She said LaSalle believes that real estate market values are now fair relative to signals from the bond market, and appraisal yield metrics have stabilized. “While lower interest rates would provide further support, we do not anticipate a significant decline, nor do we believe lower rates are necessary to draw more capital into commercial real estate,” she said. A more compelling factor is that many investors are currently under-allocated to real estate, partly because of the stock market’s significant appreciation. “This makes CRE appear underpriced,” she said. The Hodes Weill Real Estate Allocations Monitor supports this view, reporting that actual real estate allocations fell by 50 basis points last year, leaving institutions, on average, 90 basis points below their targets. “Coupled with ample debt capital and stronger equity flows, we expect these dynamics to drive further growth in transaction volume in 2026 and 2027,” Wichmann said. She added that LaSalle expects the trend of refinancings outpacing new acquisitions to continue through 2026. This is not a new phenomenon, according to MSCI Real Capital Analytics data. Refinancings have accounted for an elevated share of commercial real estate loan origination volume for years, reaching over 50% since 2017 and climbing to more than 60% since 2023. “A strong recovery in property values would be needed to motivate more owners to sell and push acquisition activity above refinancings,” Wichmann said.