When Sentiment Meets Strategy

Investor sentiment has always played a pivotal role in shaping market behavior–but how closely does it track with the reality painted by economic research and data? This report seeks to uncover that relationship, examining alignment and divergence between investor options (as captured in the 2026 Matthews Investor Sentiment Survey) and insights drawn from broader economic and market research. Ultimately, this report isn’t about predicting the future–it’s about sharpening the lens through which we view it. By understanding where sentiment and data converge or collide, stakeholders can make more grounded decisions in an environment that continues to be shaped by uncertainty, opportunity, and change.

 

Key Takeaways

• Most investors reported solid or steady performance in 2025, and nearly 80% experienced flat or higher property values
• Industrial is the clear sector leader
• Value outlooks skew towards flat-to-modestly high outcomes
• While bid-ask spreads are narrowing, most investors believe values have not fully bottomed
• Rising insurance costs stand out as the most significant operational headwind
• Interest rates remain the primary gatekeeper of deal activity
• Debt markets are easing slowly and selectively
• Capital is gravitating towards core stabilized assets and opportunistic/distressed opportunities
• Market selectivity is increasingly disciplined, skewed towards Sunbelt and Primary markets

 

Industrial Leads Preference

Investor expectations have increasingly centered around industrial assets as the leading performer, marking a notable shift from the multifamily-dominated sentiment that prevailed through much of the post-pandemic period. While industrial briefly led preferences in H1 2021, multifamily quickly reasserted itself as the top-ranked sector from late 2021 through 2024, consistently capturing the largest share of the top-three selections amid strong rent growth and capital inflows. That dominance began to erode in 2025 as investor conviction broadened, with industrial regaining parity in H1 2025 before decisively moving into the lead by H2 2025.

 

Looking into 2026, industrial is positioned as the top-performing sector in investor expectations, reflecting continued confidence in logistics-driven demand, supply discipline, and resilient fundamentals. Retail, while increasingly present in the rankings, remains a secondary outperformer relative to the two core sectors, reinforcing the view that the next cycle will be led by operationally efficient, demand-backed asset classes rather than purely yield-driven trades.

 

Top Performing Asset Class Expectations Over Time

 

Market Stabilization Reflected in Investment Performance and Values

Investor feedback suggests that 2025 marked a period of measured stabilization across commercial real estate portfolios, even as broader market adjustments continued. When evaluating full-year performance, a clear majority of respondents reported solid outcomes, with two-thirds (66.67%) characterizing their CRE investment performance as “good” and an additional 20.83% describing results as “average.” Together, these responses indicate that most portfolios were able to maintain performance through a challenging but improving operating environment.

 

This stabilization is also evident in reported property values. Nearly 80% of respondents indicated that asset values in 2025 were either “flat” or “higher,” while only a limited share experienced further declines. The results suggest that investors are moving beyond the sharp valuation resets experienced in prior years and into a more balanced and predictable pricing environment, even if upward momentum remains selective and asset specific.

 

Market Expectations Favor Balance Over Acceleration

Despite these encouraging signals, market sentiment remains constructively cautious. Looking ahead to 2026, most respondents characterized overall CRE sentiment as “stable” (64%), while a smaller but meaningful share described conditions as “improving” (20%). This tempered outlook is reinforced by expectations for property values, which remain skewed toward stability rather than acceleration. When asked where CRE values are headed in 2026, nearly half of respondents (44.44%) expect values to remain flat, while 33.33% anticipate further increases. Only a limited portion of investors foresee renewed downside, with just over 11% expecting lower values and none anticipating a significant valuation correction.

 

Where Are CRE Values Heading in 2026?

 

 Stabilization Tempered by Ongoing Pricing Uncertainty

At the same time, uncertainty around pricing dynamics has not fully dissipated. While 64.58% of investors believe bid-ask spreads have narrowed, pointing to improved price discovery and transactional alignment, 62.50% do not yet believe pricing has fully bottomed across most sectors. Taken together, these responses reflect a market that has regained footing, but one in which investors remain deliberate, selective, and focused on downside protection as the next phase of the cycle unfolds.

 

Investor Views on Whether CRE Pricing Has Bottomed

 

Perceptions of Bid-Ask Spread Narrowing Across CRE Sectors

 

Rising Operational Costs Remain a Key Pressure Point

Operational pressures remained a central theme for investors in 2025, with insurance costs emerging as the most significant headwind across portfolios. Half of all respondents (50%) identified insurance as the expense that increased most sharply over the year, far outpacing other cost categories such as property taxes, utilities, maintenance, and labor. The results underscore the growing impact of structural, non-discretionary expenses on asset performance, particularly in markets exposed to climate risk, rising replacement costs, and tightening underwriting standards.

 

The Operational Cost That Rose Most Sharply in 2025

Concerns around market distress also remain elevated. Nearly half of respondents (49%) believe distress is currently “expanding,” signaling increased scrutiny at the asset level and a heightened focus on fundamentals such as tenancy quality, lease rollover risk, and capital expenditure requirements.

 

Level of Market Distress

 

Leasing demand expectations, by contrast, appear more balanced. Most respondents expect leasing conditions in 2026 to remain broadly consistent with 2025, pointing to a market characterized by steady (but uneven) tenant demand rather than a sharp acceleration or contraction. Taken together, these insights point to an operating environment in which rising expenses and selective distress, rather than short-term market volatility, are likely to play a more influential role in shaping investment strategy and underwriting discipline in the year ahead.

 

Leasing Demand to Remain Stable in 2026

 

 Interest Rates Are Forecast to be the Dominant Force in 2025 Dealmaking

Interest rates are expected to remain the single most influential driver of CRE transaction activity in 2026, shaping both investor confidence and deal execution. Nearly half of respondents (48.72%) identified interest rates as the factor with the greatest impact on dealmaking in the year ahead, far outweighing other considerations. The results underscore that while sentiment has improved from recent lows, transaction velocity remains tightly linked to monetary policy signals, borrowing costs, and the pace of capital flow normalization.

 

Biggest Impacts on Dealmaking in 2026

 

Expectations for deal volume reflect this constraint. When asked whether CRE transaction value will fall in the f irst half of 2026 compared to H1 2025, a majority of respondents anticipate continued pressure, with nearly half expecting transaction volumes to decline and an additional share projecting a more pronounced pullback. In 2024, nearly one-quarter of respondents expected values to decline, compared with just 14.58% in 2025. Although roughly one-third expect activity to remain flat, few investors foresee a meaningful acceleration in deal flow in the near term, reinforcing the view that recovery will be gradual rather than immediate.

 

Where Will CRE Transaction Value Fall in H1 2026 in Comparison to H1 2025?

 

CRE Value Performance

 

Debt Market Shows Signs of Easing, While Timing Remains Conservative

Debt availability further reinforced the cautious outlook. When evaluating lender behavior in 2026, nearly half of respondents (46.67%) expect debt capital availability to remain moderate, while more than 22% anticipate a restricted or very restricted lending environment. By contrast, fewer than 40% believe debt will be broadly accessible. These expectations suggest that even as pricing clarity improves, financing conditions are likely to remain selective, favoring well-capitalized sponsors, lower-leverage structures, and assets with durable cash flow.

 

Debt Capital Availability

 

Investor behavior aligns with these constraints. Fewer than half of respondents describe themselves as likely to pursue new transactions in H1 2026 assuming current conditions persist, with a significant portion remaining undecided. This hesitation reflects the continued gap the market is experiencing.

 

Capital Allocations by Year

 

When Is the Best Time to Buy?

 

How Likely Are You to Pursue New Transactions in 2026 if Current Conditions Persist?

 

 Investment Profile Reveal Strong Interest in Core and Distressed Strategies in Primary Markets

Investor responses point to a barbell-style opportunity set heading into the first half of 2026, with capital gravitating toward both defensive and selectively opportunistic strategies. When evaluating investment opportunities by profile, respondents rated core stabilized and opportunistic/distressed strategies among the strongest categories, with weighted averages of 3.18 and 3.13, respectively. Core-plus also registered a neutral-to-positive outlook, while value-add opportunities were viewed more cautiously. Development received the weakest outlook, with the lowest weighted score across all profiles, reflecting ongoing concerns around elevated construction costs, tighter financing conditions, and execution risk.

 

This distribution highlights a market in which investors are prioritizing either high-quality, income-stable assets or deep-value opportunities where repricing has created compelling entry points, while largely avoiding capital-intensive strategies that depend on aggressive rent growth or favorable financing assumptions. The divergence underscores a continued emphasis on downside protection, balance sheet strength, and clear paths to stabilization.

 

 

Market depth preferences further reinforce this selectivity. Among geographic market types, Sunbelt markets emerged as the most favorably viewed, posting the highest weighted average (3.22), supported by stronger “strong” and “very strong” responses relative to other regions. Primary markets followed closely, with sentiment centered around stable conditions and selective opportunity, while secondary and tertiary markets trailed, reflecting more muted expectations and higher perceived risk. Together, the results suggest that while investors remain active across market tiers, capital is increasingly concentrated in locations with deeper liquidity, more resilient demand drivers, and clearer exit visibility.

 

H1 2026 investment activity is targeted, favoring core and distressed strategies in primary and Sunbelt markets, while development and higher-risk geographies remain largely sidelined.

 

Overall Outlook: A Transitional Year Defined by Stability and Selective Opportunity

Heading into 2026, investor sentiment and strategy reflect a market that has regained stability but not complacency. The sharp dislocations of prior years have largely subsided, replaced by a more predictable, though still constrained, investment environment defined by selective opportunity, disciplined underwriting, and patience. Industrial assets sit at the forefront of expectations, while capital broadly favors strategies and geographies that offer resilience, liquidity, and clear downside protection.

 

At the same time, uncertainty around interest rates, debt availability, and the ultimate pricing floor continues to temper transaction activity. As a result, the next phase of the cycle is unlikely to be driven by broad-based expansion. Instead, 2026 is shaping up as a year of targeted execution, where success hinges on asset quality, capital structure, and market depth rather than cyclical tailwinds alone. In this environment, investors who align sentiment with data and strategy with discipline will be best positioned to navigate both the risks and opportunities ahead.