Real Estate Views of 2026

BY JOHN MURRAY, KIRILL ZAVODOV, RUSSELL GANNAWAY, FRANÇOIS TRAUSCH

After a turbulent period, real estate markets have absorbed a significant amount of pain. We believe 2026 will be defined by structural uncertainty and a return to fundamentals. Predicting interest rates remains complex, so underwriting will need to prioritize income quality over speculative cap rate compression.

While we expect transaction activity to increase — which will likely create more price discovery in equity markets and drive financing in a still-underserved debt market — we stand by our view that uncertainty is now structural and that the recovery will be uneven.

In this market context, we believe success will come to investors who prioritize assets and strategies that can offer durable income and can perform well even in flat or faltering markets. The role, for instance, which social and digital infrastructure-like assets can play in portfolios will likely continue to accelerate.

"I think the 2022 to 2024 adage in real estate of stay alive till ‘25 fundamentally presumed that we’d have a much tighter interest rate regime today. We believe real estate platforms should not try to be armchair economists and instead focus on investments that have relatively greater certainty around rental levels and in place income."

– John Murray

Our Five Key Themes for 2026

1. Income Resilience Over Market Beta

In a world of uncertainty, the focus must be on income and, more importantly, the quality of that income. When we look at business plans today, the majority of returns need to come from the asset itself rather than external market forces such as assuming cap rate compression.

If you’re investing in equity, we believe that means prioritizing stable income; if you’re investing in debt, it means positioning yourself as more senior in the capital structure. If underwriting relies on cap rate compression, our view is one should either avoid the deal or move to a more secure position.

Real estate remains an inflation-linked asset class, and inflation hasn’t disappeared. Rates have come down enough to ease some pressure but not enough to eliminate concerns. In today’s market managers need to focus on the quality of the underlying income: to understand the impact of secular trends and to be disciplined in asset selection and management.

— Francois Trausch

2. Real Estate Debt Remains Compelling

Liquidity is returning to debt, with spreads tightening by 30–50 basis points,² though still above pre-tightening conditions. Transaction activity is expected to rise in 2026, and with it, acquisition financing is gaining momentum — a notable shift from years dominated by refinancings and, to a lesser extent, construction loans. While the wall of maturities we have spoken of before will continue to dominate, this trend reflects a narrowing bid-ask spread, unlocking potential deal flow across major asset classes.

Multifamily, industrial, and hospitality will likely lead the way, while retail and office are re-emerging as selective plays. Banks are cautiously re-entering, focusing on stabilized assets or providing back leverage, leaving ample room for alternative lenders in the construction financing space. Larger banks appear more willing to force sales and resolutions of underperforming exposures, while regional banks still hold significant distressed positions — to the extent these regional banks are forced to sell loans, buyers will most certainly need strong execution capabilities given the nature of the underlying collateral.

This combination will provide ongoing opportunities for private credit and opportunistic strategies to both fill the gap and originate senior loans on transitional assets.

3. The Blurring Lines Between Infrastructure and Real Estate

There is an ongoing institutionalization of alternative real estate sectors and a growing convergence between infrastructure and real estate. As infrastructure-like assets become mainstream (particularly in social and digital infrastructure areas), governments are increasingly turning to private-sector solutions for infrastructure needs, creating new avenues for real estate capital deployment.

Assets such as hospitals, supermarkets, and defense-related facilities now exhibit infrastructure-like characteristics — long leases, and stable income streams — making them highly attractive to institutional investors seeking resilience and predictable cash flows. In today’s environment, we believe this type of quality income matters more than ever.

In Europe, the pressure of deglobalization means defense is emerging as a significant theme. This is presenting opportunities: the additional pressure on public finances is reinforcing the role of private players in bridging gaps for both capital, expertise and speed of execution. For the years ahead, the real opportunity lies in helping governments resolve aspects of defense needs through innovative private-sector solutions, while structuring deals that balance operational complexity with long-term stability.

It’s about the quality of income. Social infrastructure, net leases with investment-grade issuers and hyperscale-oriented digital infrastructure are likely to perform better because investors prioritize stability and predictable cash flows. The real opportunity lies in helping governments resolve infrastructure and real estate needs through private sector solutions.

— Kirill Zavodov

4. Data Centers as a Growth Engine

Infrastructure has been a strong and stable investment sector for many years — pursuing long-term, resilient and often inflation-linked returns.

In a similar vein, digital infrastructure assets such as data centers can, today, offer institutional allocators a comparable potential income profile as well as portfolio diversification benefits.

Demand for data centers remains nearly insatiable. While the sector offers compelling potential opportunities, factors such as location, path-to-power availability, intended use, and tenant profile are critical to evaluate and underwrite when investing in debt or equity. The technical complexities of this space should not be underestimated. Lenders, in particular, must structure covenants carefully as slippage accrues to the benefit of hyperscalers.

In a world in which Artificial Intelligence remains dominant, genuine market intelligence in real estate will be key.

Data centers are a prime example of where caution is needed. While demand fundamentals are strong, these are highly complex investments with risks like speculative projects, covenant slippage in favor of hyperscalers, and power constraints. Not every deal is created equal; lending to a hyperscale tenant with strong covenants is very different from backing a speculative operator. The message is clear: be selective and understand the underlying fundamentals before committing capital.

— John Murray

5. The Rise of Social Infrastructure and Living Sectors

For PIMCO, social infrastructure-like assets are central to how we aim to deliver resilient, inflation-linked income. 

Affordable housing, senior living, education, healthcare and necessity driven retail are once again gaining institutional interest. In today’s world these sectors seek to offer stable income flow, offering potential resilience and aligning with long-term structural demand.

Their ascendency should be viewed in the context of a changing world. Globally relevant themes driving income opportunities have come to the fore, including what we refer to as the five Ds: demographics, digitalization, decarbonization, deglobalization, and defense.

No matter the theme or sector, landlords now need to work harder to sustain tenancy and income. But managed correctly, these sectors are attracting not only traditional real estate investors but also broader institutional capital.

While real estate has absorbed much of the pain already, no one can afford complacency. Some deals look attractive because they follow big names, but copycat transactions often lack the fundamentals. The ability to differentiate between strong and weak opportunities is essential, today. In this environment, selectivity and expertise matter more than ever — knowing what you’re saying ‘yes’ to and why is what can help protect you from downside risk.

— Russell Gannaway