KEY POINTS

• Commercial real estate markets stand to benefit from a number of tailwinds, with attractive valuations, a lower interest-rate environment and easing credit conditions reviving deal activity.
• With the current environment showing both opportunities and challenges, selectivity is key.
• Real estate is a large, mature asset class that has delivered strong long-term performance across market cycles, providing stable returns in volatile or inflationary periods.

Three Factors Currently Supporting Real Estate

The commercial real estate sector is entering 2026 with renewed momentum, clearer visibility and growing optimism following nearly two years of restricted financing and elevated rates that constrained transactions. Three factors are supporting the market’s optimism:

1. Lower interest rates. Three rate cuts in 2025 helped stabilize lending rates—and lower interest rates have historically led to higher cash flow coverage, bringing down loan loss reserves for banks. Larger reserves then facilitate more commercial real estate lending and deal flow. Historically, the resulting increase in transaction activity has led to higher property values over the long term.

2. Valuations are beginning to rise—but are still attractive. Across most asset classes and quality levels, pricing has found a floor, and values are rising again. However, real estate equity valuations remain about 17% below prior peaks,⁶ creating a tailwind for attractive valuations, with a deeply insulated entry point into the capital stack for credit investors.

3. Easing credit conditions are reviving deal activity. The backbone of any real estate cycle is credit. And after nearly two years of tightened credit conditions, we are seeing a significant increase in real estate loans. As debt costs eased in 2025, lenders reentered the market and institutional capital returned, supporting a broad-based revival in deal activity.

Indeed, real estate credit markets are experiencing record liquidity and rising transaction volumes, with 2025 issuance of commercial mortgage-backed securities (CMBS) exceeding $125 billion, the highest since 2007 (see below). Because CMBS serves as a key barometer of private real estate credit, today’s issuance momentum reflects renewed market depth.

The reemergence of credit is critical, as it enables capital to flow again. Transaction volumes have already rebounded, signaling renewed confidence (see below).

Selectivity Is Key

The current environment offers attractive opportunities for investors, although some challenges persist in certain segments of the market. Below are three sectors we believe are particularly well positioned for the year ahead:

Housing. Supply is at record lows, driving up demand, which has been further bolstered by the powerful demographic trends being shaped by millennials and baby boomers.

Logistics. Digital infrastructure demand is redefining land valuations in the logistics sector—particularly in locations with favorable access to power. Skilled operators with utility partnerships can secure grid access and engage local government cooperation to help unlock building incentives.

Hospitality. Record tourism volume, coupled with limited new supply, is supporting favorable dynamics for the hospitality real estate sector.

However, it is important to note some challenges in the asset class. While liquidity is broadly returning, it remains uneven. Moreover, many real estate assets and managers continue to face stress due to declining fundraising volumes and lower cash-on-cash returns, combined with debt and fund maturities.

Still, these challenges can create opportunities for scaled and well-capitalized investors to partner with motivated sellers, including small and midsize general partners (GPs), to help recapitalize high-quality, de-risked real estate assets.

The deal environment is primed for those who can combine data-driven insight with strategic conviction, operating experience, and access to opportunities in geographies and sectors that are not often available to those with less market insight. Quality matters more than ever—top-performing assets and strong operators are expected to outperform, while tertiary markets and lower-tier properties carry greater risks. It is important to remember that deals are made at entry and measured at exit, but much of the value of a successful investment is earned during the period when it is being held. In other words, operations matter—especially as we enter the next phase of the real estate cycle.

The Bottom Line

Commercial real estate markets are normalizing, with renewed liquidity enabling price discovery and reactivating deal flow, and valuations are attractive. Additionally, a declining-interest-rate environment should provide a tailwind for the asset class.

With the recovery underway, it is important to remember that real estate is a large, mature asset class that, in our view, has delivered strong long-term performance across market cycles, providing stable returns in volatile or inflationary periods. We believe that success in real estate investing will depend on selectivity and getting results from operational value creation as the asset class recovers.

Read more in our Alts Quarterly Q1 2026.

ENDNOTES 

⁶ Green Street, Commercial Property Pricing Index (CPPI), as of October 2025.

A WORD ABOUT RISK

As an asset class, private credit comprises a large variety of different debt instruments. While each has its own risk and return profile, private credit assets generally have increased risk of default, due o their typical opportunistic focus on companies with limited funding options, in comparison with their public equivalents. Because private credit usually involves lending to below-investment-grade credit assets is increased in return for taking on increased risk.

Investments in real estate-related instruments may be affected by economic, legal or environmental factors that affect property values, rents or occupancies of real estate.

Infrastructure companies may be subject to a variety of factors that may adversely affect their business, including high interest costs, high leverage, regulation costs, economic slowdown, surplus capacity, increased competition, lack of fuel availability and energy conservation policies.

Alternative investments often are speculative and include a high degree of risk. Investors could lose all or a substantial amount of their investment. High-yield bonds are subject to interest-rate risk. When interest rates rise, bond prices fall; generally, the longer a bond’s maturity, the more sensitive it is to this risk. Yields are subject to change with economic conditions. Yield is only one factor that should be considered when making an investment decision.

The information in this publication is not and is not intended as investment advice, an indication of trading intent or holdings, or a prediction of investment performance.

Diversification does not guarantee a profit or protect against loss. The views and information expressed herein are subject to change at any time. Brookfield disclaims any responsibility to update such views and/or information. This information is deemed to be from reliable sources; however, Brookfield does not warrant its completeness or accuracy.

The opinions expressed herein are the current opinions of Brookfield, including its subsidiaries and affiliates, and are subject to change without notice. Brookfield, including its subsidiaries and affiliates, assumes no responsibility to update such information or to notify clients of any changes. Any outlooks, forecasts or portfolio weightings presented herein are as of the date appearing on this material only and are also subject to change without notice.

Past performance is not indicative of future performance, and the value of investments and the income derived from those investments can fluctuate.

FORWARD-LOOKING STATEMENTS

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INDEX PROVIDER DISCLAIMER

The quoted indexes within this publication are unmanaged and cannot be purchased directly by investors. Index performance is shown for illustrative purposes only and does not predict or depict the performance of any investment. There may be material factors relevant to any such comparison, such as differences in volatility and also regulatory and legal restrictions between the indexes shown and any investment in a Brookfield strategy, composite or fund. Brookfield obtained all index data from third-party index sponsors and believes the data to be accurate; however, Brookfield makes no representation regarding its accuracy.

Brookfield does not own or participate in the construction or day-to-day management of the indexes referenced in this document. The index information provided is for your information only and does not imply or predict that a Brookfield product will achieve similar results. This information is subject to change without notice. The indexes referenced in this document do not reflect any fees, expenses, sales charges or taxes. It is not possible to invest directly in an index. The index sponsors permit use of their indexes and related data on an “as is” basis, make no warranties regarding the same, do not guarantee the suitability, quality, accuracy, timeliness and/or completeness of their index or any data included in, related to or derived therefrom, and assume no liability in connection with the use of the foregoing.

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KEY TERMS AND INDEX DEFINITIONS

Bloomberg Global Aggregate Index is a market-capitalization-weighted index comprising globally traded investment-grade bonds. The index includes government securities, mortgage-backed securities, asset-backed securities and corporate securities to simulate the universe of bonds in the market. The maturities of the bonds in the index are more than one year.

Bloomberg U.S. Corporate High Yield Bond Index measures the USD-denominated, high-yield, fixed-rate corporate bond market. Securities are classified as high yield if the middle rating of Moody’s, Fitch and S&P is Ba1/BB+/BB+ or below.

Cliffwater Direct Lending Index (CDLI) seeks to measure the unlevered, gross-of-fee performance of U.S. middle-market corporate loans, as represented by the asset-weighted performance of the underlying assets of business development companies (BDCs), including both exchange-traded and unlisted BDCs, subject to certain eligibility requirements.

FTSE EPRA Nareit Developed Real Estate Index is an unmanaged market-capitalization- weighted total-return index that consists of publicly traded equity REITs and listed property companies from developed markets.

FTSE Global Core Infrastructure 50/50 Index gives participants an industry-defined interpretation of infrastructure and adjusts the exposure to certain infrastructure subsectors.The constituent weights are adjusted as part of the semi-annual review according to three broad industry sectors: 50% Utilities; 30% Transportation, including capping of 7.5% for railroads/railways; and a 20% mix of other sectors including pipelines, satellites and telecommunication towers. Company weights within each group are adjusted in proportion to their investable market capitalization.

Green Street Commercial Property Price Index (CPPI) is a time series index published by Green Street, which tracks the value of U.S. commercial real estate properties. The index is based on transaction prices and appraisals of institutional-quality properties across major sectors, including office, industrial, retail and multifamily. It is widely used as a benchmark for changes in commercial property values over time.

ICE BofA Single-B U.S. High Yield Index tracks the performance of USD-denominated below-investment-grade corporate debt publicly issued in the U.S. domestic market, including all securities with a given investment-grade rating of B.

ICE BofA U.S. Convertibles Index tracks the performance of convertible bonds in the U.S.

ICE BofA U.S. High Yield Constrained Index measures the performance of USD-denominated, non-investment-grade, fixed-rate, taxable corporate bonds.

J.P. Morgan CLO A Index is a subset of the J.P. Morgan CLO index that only tracks the A-rated CLOs.

J.P. Morgan CLO BB Index is a subset of the J.P. Morgan CLO index that only tracks the BB-rated CLOs.

J.P. Morgan CLO BBB Index is a subset of the J.P. Morgan CLO index that only tracks the BBB-rated CLOs.

MSCI ACWI ex USA captures large- and mid-cap representation across developed markets (DM) countries (excluding the U.S.) and emerging markets (EM) countries. The index covers approximately 85% of the global equity opportunity outside the U.S.

MSCI Emerging Markets Index is used to measure the financial performance of companies in fast-growing economies around the world. The index tracks mid-cap and large-cap stocks in 25 countries.

MSCI World Index is a free-float-adjusted market-capitalization-weighted index that is designed to measure the equity market performance of developed markets.

Preqin Infrastructure Index captures in an index the return earned by investors on average in their private infrastructure portfolios, based on the actual amount of money invested in private capital partnerships. Each data point is individually calculated from the pool of closed-end funds for which comprehensive performance data is held, as of both the start and end of the quarter.

Preqin Private Equity Index captures in an index the return earned by investors on average in their private equity portfolios, based on the actual amount of money invested in private capital partnerships. Each data point is individually calculated from the pool of closed-end funds for which comprehensive performance data is held, as of both the start and end of the quarter.

Preqin Real Estate Index captures in an index the return earned by investors on average in their private real estate portfolios, based on the actual amount of money invested in private capital partnerships. Each data point is individually calculated from the pool of closed-end funds for which comprehensive performance data is held, as of both the start and end of the quarter.

S&P 500 Index is a market-cap-weighted equity index of 500 widely held, large-capitalization U.S. companies.

S&P UBS Leveraged Loan Index measures the market-value-weighted performance of the investable universe of USD-denominated leveraged loans.

VERUS 2025-08 represents Verus Securitization Trust 2025-08’s issuance of an RMBS transaction backed by primarily newly originated first- and second-lien, fixed- and adjustable-rate residential mortgage loans, including mortgage loans with initial interest-only periods, to prime and nonprime borrowers.

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