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For many years following the COVID-19 pandemic, real estate has been a sore spot in institutional portfolios. Following a decade-long pre-COVID bull market fueled by low interest rates, property values since 2022 have fallen significantly from their highs.
Still, transaction activity is recovering, and a growing number of managers argue that the asset class is entering a new investment cycle. According to CBRE, commercial real estate investment activity is expected to have increased by approximately 16% in 2026, suggesting investors are beginning to reengage with the sector.
The Real Estate Recovery Cycle
“The most important thing to focus on in this point of the cycle is, if you looked from 2008 until 2022, it was about a 14-year run-up in the cycle,” says Kyle Jeffers, CIO of real estate credit manager Acore Capital. “The market bottomed out in ‘23 and ‘24 because there was such uncertainty about what the values were, where the rate environment was going. In 2025, we saw transaction activity return and again in ‘26.”
Jeffers notes that it feels like the markets are still at the early part of this real estate cycle, and there is still a long way for a full recovery. “So, if you think if it was a 14-year cycle last time, and now it’s in the second or third year right now, we have a really long way to run. And with good fundamentals behind the demand generators in almost all property types, the lack of new supply coming on and construction starts declining, it feels like a really good time to be investing in CRE credit.”
That view is becoming increasingly common across the private real estate market. Several industry benchmarks suggest that values have stabilized after years of decline. While recovery has been uneven across sectors, investors appear more willing to deploy capital following a period dominated by uncertainty over both interest rates and asset pricing.
“The 2022-23 rate spike reset valuations, and we’re now seeing institutional capital shift toward contractual cash flows, which is [a core strength of] net lease [investing,]” says Todd Stender, managing director at LNL Capital. “Investors are prioritizing income over expectations of cap rate compression to drive valuations.”
Stender adds, “From our vantage point as lenders to sponsors, we’re seeing increased capital deployment into net lease opportunities. The combination of attractive yields, contractual tenant credit, and long-duration leases is unlocking significant institutional appetite for this asset class.”
Opportunities in Real Estate
If the market is entering the next phase of an investment cycle, investors say success will depend less on broad exposure to real estate and more on identifying the sectors best positioned to benefit from long-term structural trends.
Data centers, for example have emerged as an in-demand segment, fueled by rapidly growing need for infrastructure to support the artificial intelligence boom. CBRE expects data-center leasing activity to continue to grow, as power availability, rather than tenant demand, has become the primary constraint on growth. The delivery timelines for large industrial gas turbines are now five to seven years, and 18 to 36 months for smaller power generation equipment, according to news reports in late October.
The sector’s growth prospects have attracted significant institutional capital despite growing concerns about rising development costs and increasing competition among investors seeking exposure to AI-related infrastructure. This demand increase comes despite political debate about the building and growth of data centers, a central issue in the 2026 midterm elections.
Jared Gross, head of institutional portfolio strategy at JPMorgan Asset Management, adds that while there are political headwinds for AI and data centers, he does not see anything diverting capital away from the sector.
“If you include data centers within the real estate category, data centers have obviously generated really strong returns for investors that are developing data centers. Generally speaking, they’ve been developing these assets at a yield on cost of somewhere between 9% and 12%,” says Jeff McDonnell, managing director at Partners Capital. “And those assets typically trade once they’re stabilized—some are between 5% and 6% or maybe low in the 6% range on a development margin of well over 50% in most cases. That’s one of the only sectors where we’ve seen attractive opportunities on the development side.”
Beyond data centers, investors are also looking at industrial, commercial and multifamily opportunities in core markets where new construction has slowed down and supply is limited.
“The way we view real estate is, it’s intended to be a diversifying asset class within a multi-asset class portfolio… obviously we have been in a period over the last five years of higher inflation and real estate has not performed well,” McDonnell says. “So, it generally hasn’t been an inflation hedge, but I think when we look on a go-forward basis about correlations to other asset classes, we continue to think industrial and multifamily should have relatively lower correlation to other drivers in the portfolio.”
Jeffers’ take on the market is that “a lot of people were looking at [commercial real estate equities] in the past because they thought their returns were attractive, but we went through this downcycle and they lost money.”
“Now you’re looking at commercial real estate debt and saying, ‘Wait, I can be at 65% loan-to-cost with 35% subordination on a new reset value, and I can make a return that meets my objectives with downside protection,’” he added. “So I think we’ve seen more institutional capital come into the sector saying, ‘Hey, we really like the risk adjusted returns associated with credit.”
Tags: Alternatives, commercial real estate, distressed real estate, Institutional Real Estate, Interest Rates, valuation
