The overall CMBS cap rate across US commercial real estate stood at 6.28% at year-end 2025, having expanded from 5.91% in Q1 2025. This expansion reflects the adjustment from the historically low rate environment of 2020 to 2022 to a higher-for-longer interest rate backdrop, rather than a deterioration in asset quality or occupancy fundamentals. Total CRE transaction volume in the US was up approximately 19% in 2025 year-on-year, with nearly three quarters of institutional investors indicating plans to buy more assets in 2026. Pricing has stabilised. The cap rate expansion cycle, which began in 2022, is approaching its end in most sectors.

The sector picture is heterogeneous. Industrial cap rates, which had compressed to historically tight levels during the e-commerce demand surge of 2020 through 2022, expanded sharply in Q4 2025, with a 92 basis point jump between Q3 and Q4. This late-year expansion reflected lender caution as warehouse demand normalised following the post-pandemic oversupply in certain Sun Belt markets. Retail cap rates moved in the opposite direction, tightening from 7.20% in Q1 2025 to 6.36% by year-end, reflecting renewed institutional confidence in grocery-anchored and necessity-based retail formats that have demonstrated occupancy resilience. Office cap rates expanded modestly, consistent with the delinquency data. Self-storage compressed from 6.61% to 5.73%, reflecting the asset class's counter-cyclical demand profile.

The compression story in Q1 2026 is concentrated in European industrial and logistics. Institutional capital that had paused logistics investment in 2024 and early 2025, waiting for rate clarity and for the post-pandemic supply wave to absorb, returned in volume through Q1 2026. Prime logistics cap rates compressed by 8 to 12 basis points across the Frankfurt, Paris, Amsterdam, and Warsaw corridors. This followed a period in which prime logistics rents increased materially between 2021 and 2025 and continue to grow moderately. The combination of rent growth and cap rate compression implies capital value appreciation that exceeded the all-property index in the quarter.

The European logistics market is being driven by two structural forces that operate independently of the interest rate cycle. The first is e-commerce penetration, which continues to expand faster than last-mile delivery infrastructure is being built in every major European market. The second is nearshoring. Poland's Warsaw and Silesia corridors are absorbing manufacturing and assembly operations that were located in China or Southeast Asia prior to the supply chain reassessment of 2020 through 2023. This nearshoring demand is not logistics demand in the conventional sense. It is industrial demand for manufacturing floor space with high clear heights, reinforced floors, and access to three-phase power, which commands premium rents and long leases from occupiers who have made multi-year capital commitments to the site.

The US industrial market in Q1 2026 is bifurcated in a way that the aggregate cap rate data does not capture. Markets with genuine supply constraints, including Los Angeles, New Jersey, and the Inland Empire, are seeing cap rates hold firm or compress modestly, because new development is limited by land availability, building costs, and planning timelines. Markets where the development pipeline ran ahead of demand during 2022 and 2023, including Dallas-Fort Worth, Phoenix, and Atlanta, are absorbing excess supply and seeing modest cap rate expansion as vacancy rates elevated above historical norms. These are not permanent structural problems. Vacancy in the Sun Belt logistics markets is rising from a very low base, and absorption continues at above-trend rates. But the compression trade that was available in these markets in 2021 and 2022 has passed.

The port-adjacent industrial thesis remains intact in both the US and Europe. Assets located within viable truck transport time of major port infrastructure in Los Angeles, Rotterdam, Hamburg, and Felixstowe carry structural occupancy premiums that compensate for higher acquisition costs relative to inland logistics parks. Port-adjacent vacancy has remained below 3% across the major US and European gateway port markets through the 2025 absorption cycle, because port proximity is a feature that cannot be manufactured by developing additional supply in an inland market. The occupier who needs to clear customs-bonded goods and move them quickly into the regional distribution network cannot substitute an inland facility for a port-adjacent one.

Office cap rate expansion in Q1 2026 was modest at the all-property level, masking a material dispersion between trophy assets in supply-constrained CBDs and the Class B and C stock that is working through a structural vacancy problem. Manhattan's trophy office market recorded the lowest vacancy rate of any major US market at 13.6% in Q1 2026, with leasing volumes at or near pre-pandemic levels as financial services and AI-sector employers competed for the best-located, best-specified buildings. At the same time, Class B and C properties in Manhattan's outer boroughs and in suburban submarkets across every major US city recorded cap rate expansion that reflects the market's assessment of long-term occupancy risk.

Retail's recovery is more straightforward. The grocery-anchored neighbourhood centre, which had been written off as collateral damage from e-commerce disruption, is demonstrating occupancy and rent growth that has reversed institutional selling and brought new capital back to the sector. The strongest valuations in a decade are reported for active shopping centres excluding regional malls. Prime high street retail in London, Paris, and Tokyo is recovering as international tourism returns to or exceeds pre-pandemic levels and as luxury brands continue to pay record rents for flagship locations in markets where the competition for prime pitch space has no effective substitute.