- Investment activity to slow over six months.
- Hotel refinancing, new construction compete for capital.
- Debt funds, well-capitalized buyers could find opportunities.
COMMERCIAL REAL ESTATE capitalization rates are expected to rise at least 40 to 60 basis points in the near term as U.S. Treasury yields remain elevated, according to CBRE. The increase implies average property value declines of 6 percent to 10 percent, the firm estimates.
The 10-year Treasury yield has remained near or above 5 percent since Sept. 10, its highest level since 2007, CBRE said in its Oct. 28 report, “Higher-for-Longer Rates: Implications for Commercial Real Estate.” The spread between average cap rates and that yield has narrowed to about 160 basis points. That is a record low, compared with the long-term average of roughly 325 basis points.
The narrow spread leaves property prices more exposed to rising rates than in previous cycles, CBRE said. The firm said deals under contract are being renegotiated, while some planned sales are turning into refinancings. Multifamily and industrial assets are likely to face the most pressure because their cap rate spreads to Treasury yields are below 100 basis points.
Owners face refinancing pressure
Hotel companies favor acquisitions and partnerships over new builds.Photo credit: iStock
Refinancing competes with new development for capital, according to Access Point Financial, a hotel lender. In its report, I Will Gladly Pay You Tuesday for a Hamburger Today: The State of Hotel Construction Loans, APF estimates that roughly $48 billion in CMBS-era hotel loans mature in 2025 and 2026.
Debt service on refinanced loans is often about 40 percent higher than under the original terms, APF said. Hotel construction and bridge financing rates run about 8 percent to 10 percent or higher, depending on loan structure and leverage.
That pressure directs lender and sponsor capital toward existing properties and away from new construction. At the end of the first quarter of 2026, 59 luxury hotels were under construction.
Renovations avoid the construction loan costs required for new builds, APF said. Hotel companies increasingly expand through acquisitions and partnerships instead of new construction, according to the report.
APF said construction lead times run years, so owners who secure funding now can open the newest hotel in a market with older competition.
Investors see openings
Higher debt costs thin bidders, favoring debt funds and well-capitalized investors.Photo credit: iStock
CBRE expects higher bond yields to reduce commercial real estate investment activity over the next six months before activity improves as rates stabilize. Higher debt costs are thinning bidder pools, which should open a window for debt funds and opportunistic and well-capitalized investors, the firm said.
CBRE said transactions will continue as some sellers stop holding out for a better environment and others face upcoming debt maturities. The firm identified commercial real estate debt investments as the most attractive opportunities, followed by office and retail assets.
Prime office and retail properties should face less cap rate pressure because they trade at wider spreads to Treasury yields, according to CBRE. New supply in both sectors is near historic lows, supporting fundamentals. Sun Belt multifamily faces a supply overhang and upcoming debt maturities that could create discounted acquisition opportunities for well-capitalized buyers.
Long-term interest rates should stabilize sooner than after the pandemic and begin moving lower in 2027, according to the firm. It projects the Federal Reserve will cut short-term rates in 2028 as the inflationary impact of supply shocks eases. Investment volumes should recover in the second half of 2027, barring macroeconomic shocks.
