Apparently, midterm voters aren’t the only ones with a ho-hum outlook on the economy.
Members of the commercial real estate industry are experiencing mixed attitudes when assessing current economic conditions and the outlook for 2027, according to the annual “Emerging Trends in Real Estate” survey produced by PwC and the Urban Land Institute (ULI).
The annual survey found that respondents assessed business conditions as declining during the past two years, with 50.5% rating conditions in the 2027 report as good to excellent, down from 55% in the 2026 survey and 65% in 2025.
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Developers, investors, lenders and operators describe an industry where every aspect of the business requires more work than it did a few years ago, according to PwC and ULI. Among survey respondents, nearly 89% identified interest rates and the cost of capital as among the largest problems in 2027. Just over 65% named jobs and income growth, while 63% said inflation.
When asked about the social and political issues facing real estate in 2027, nearly 74% mentioned housing costs and availability, 52% chose immigration policy and 50% pointed to geopolitical conflicts. As for real estate development issues, 67% cited labor costs and availability, 57.5% said state and local regulations and 53% highlighted operating costs.
And yet, PwC and ULI found that the survey’s outlook barometer reached its highest reading ever. The firms offered some interpretation on the issue.
“It could reflect genuine conviction that the market has repriced sufficiently to create attractive entry points and, for some participants, particularly those with available capital and a long time horizon, that conviction appears well-founded,” the report states. “It could also reflect deployment pressure, as fund timelines and capital partner expectations push activity regardless of conditions.”
One issue broadly shared by respondents was the recognition that the sources of return have changed.
“Returns in the current environment depend more heavily on income growth, operational execution and the specificity of asset and submarket selection,” the report noted.
Future trends
The survey lays out a series of future trends that will likely have a major impact on commercial real estate, including the “fiscal-financial reckoning.”
The federal deficit and future debt trajectory will intensify competition for real estate capital, PwC and ULI believe. Meanwhile, U.S. Treasurys will likely offer yields that challenge core real estate returns, and investment companies may question why they should take the risk of investing in real estate development.
The result is anticipated difficulties for the industry and financial distress among specific real estate companies. This is not a systemic crisis or a sector-wide collapse, the report contends, but a situational problem that may be tied to financing, the ownership structure or the timing of the investment and not only from the asset itself.
“The implications are showing up across the industry, in how projects are financed, how capital is allocated, how development is underwritten, and how existing assets are valued and traded,” PwC and ULI wrote.
Another emerging trend is the expanding real estate universe. The survey found that infrastructure categories of commercial real estate outscored every traditional and niche property type, including industrial, office, multifamily and hospitality.
Last year’s survey outlined the rise of formerly obscure categories, such as data centers, senior housing, self-storage, medical properties and single-family rentals, into “essential components of institutional portfolios.” This year’s report shows that some of the most compelling opportunities now sit outside the traditional categories of commercial real estate.
Renewable energy, digital infrastructure and transportation all require massive infrastructure and capital investments. These asset classes that were in the past considered too small or fragmented are now attracting institutional capital.
But such assets require a completely different evaluation than traditional real estate assets. The underwriting frameworks and downside scenarios are very different. And some assets, such as data centers, are already beginning to lose their luster as an investment prospect.
“You cannot evaluate a data center the way you evaluate an office building,” a senior executive at a digital infrastructure firm told the survey takers. “The tenants are different, the capital expenditure cycle is different, and the obsolescence risk is on a completely different timeline.”
Shifting regulations and changing demographics
A third trend impacting the CRE industry is how regulatory conditions are becoming an increasingly important component of real estate investment and development.
“Rent regulations, insurance costs, permitting issues, energy and utility constraints and restrictions on institutional ownership are all influencing where capital flows and where it does not,” PwC and ULI wrote.
The fourth trend identified by the survey is the compounding variable of demographics. The composition, location and purchasing power of real estate demand are all changing as household formation, affordability, aging, migration and income stratification shift.
The aging population is creating new demand for senior housing and healthcare real estate. At the same time, a large swath of the U.S. population are reaching their mid-30s and are moving toward buying homes.
The contradictions of this changing population are profound. Experts maintain the U.S. is short millions of homes, but a growing share of the population cannot afford the units that exist or could feasibly be built.
Many demographic trends, including the aging population, declining birth rates, the migration to the Sun Belt and the size and preference of the millennial population are continuing. Household formation rates among young adults have decelerated in recent years at a time when both structural undersupply and affordable undersupply of housing are occurring simultaneously.
Other identified trends include the importance of understanding submarkets and being able to analyze geographic areas and their needs; the coming property supply gap as construction pipelines contract for most property types; the rise of artificial intelligence as an integral part of commercial real estate; and reimagining public places as developers and investors help reshape entire neighborhoods rather than individual parcels.
