Key Forces Shaping CRE Outlook

National Retail Sector Shows Resilience,
With Select Metros Outperforming 

Inflation risks are building beneath the surface. Producer and consumption-based price-tracking measures indicate firmer inflation dynamics than headline CPI alone would suggest. 

• Inflation pressures were already emerging before the recent geopolitical developments in the Middle East, driven in part by the evolving tariff and immigration policy environment.
• Headline CPI has remained relatively tame, most recently reading 2.4 percent through February, largely reflecting cooling housing-related price growth.
• PPI has trended higher, reaching 3.4 percent in February, signaling rising input costs for manufacturers and businesses.
• This tracking metric is often a leading indicator for broader inflation measures, warranting close observation as upstream price pressures build.
•  The Federal Reserve's preferred inflation gauge, PCE, stood at 2.8 percent in January, above CPI.
• Rising energy prices are widely expected to place additional pressure on inflation in the coming months. 

Policy expectations shift amid uncertainty. Diminished rate-cut prospects have pushed Treasury yields higher, reflecting a more restrictive policy outlook.

• The Federal Reserve recently held policy rates steady, while market expectations for near-term rate cuts have fallen materially, amid an uncertain economic outlook.
• The probability of a rate cut by June has dropped below 10 percent, and easing later in the year has become questionable.
• Policy outcomes hinge on conflict duration in the Middle East, with the oil prices potentially having substantial inflationary impacts on the economy. 
• Treasury yields have moved higher as markets reprice the path of monetary policy, with the 5- and 10-year yields rising roughly 35 and 30 basis points, respectively, since Feb. 27.
• Despite recent upward movement, the 10-year yield remains range-bound in the 4.0 to 4.5 percent band. 

Lender behavior influences CRE conditions. Steady financing backdrop, repriced assets, and inflation-resistant characteristics support CRE's positioning in a volatile environment.

• Despite potential interest rate risk, lenders have thus far maintained relatively tight spreads and ample capital availability.
• As a result, borrowing costs for most CRE assets have generally remained in the low- to mid-6 percent range, with agency multifamily financing available closer to the low-5 percent range.
• While individual loan terms continue to vary based on asset quality, location, and borrower strength, financing conditions remain broadly constructive.
• The market closed 2025 with 2.8 percent vacancy and 4.5 percent rent growth, with 2026 metrics estimated at 3.0 percent vacancy and a year-over-year rent gain of 1.3 percent. 
• Although near-term economic uncertainty presents a headwind, the CRE sector should continue to offer opportunities.
• Against a backdrop of elevated equity market volatility and rich stock valuations, real estate prices have recalibrated over the past four years, reducing entry costs and bolstering yields.
•  In an increasingly choppy economic climate over the short run, CRE continues to offer durability and potential inflation resilience for investors with a longer-term horizon.

* Through March 16
Sources: Marcus & Millichap Research Services; Bureau of Labor Statistics; CME Group; Costar,
Inc.; Federal Reserve; Real Capital Analytics; U.S. Energy Information Administration