The Commercial Real Estate Trends roundtable is produced by the LA Times Studios team in conjunction with Axos Bank; Brownstein Hyatt Farber Schreck; and Shawmut Design and Construction.
Over the last few years, in the wake of a series of unanticipated challenges ranging from unprecedented wildfires, supply chain issues and new workplace trends, commercial real estate companies have had to get creative. The lingering elements of change and the management of new protocols have continued to force companies in the industry to assess and, in many cases, make permanent changes to their operations and to how they approach relationships with partners, customers and employees.
As we move into the second half of 2026 and as the landscape continues to follow an uncertain path, questions still linger. What changes and trends are here to stay for the long term? What legal, insurance and financial issues need to be addressed? What new roles is technology playing? What will the CRE industry look like a year from now?
We turned to three uniquely knowledgeable experts for their thoughts and insights about what’s next for Southern California’s resilient commercial real estate sector.
Q: How would you describe the overall outlook for Southern California commercial real estate as we head deeper into 2026?
Greg Skalaski, Executive Vice President – West Region, Shawmut Design and Construction: In Los Angeles specifically, hospitality and sports venues stand out as key areas of opportunity, driven by major global events like international soccer, professional football and the 2028 Summer Games. We see this in stadium renovations and upgrades on host campuses. These events are accelerating investment not just in the venues but in the broader guest experience, as markets prepare for increases in tourism. This tourism demand is expected to outpace hotel supply, driving both new development and renovations. At the same time, we’re seeing caution in project timing and scope as owners navigate cost pressures and economic uncertainty.
Michael Lorch, SVP, Chief Lending Officer, Axos Commercial Bank, Axos Bank: I’d describe the outlook as cautiously optimistic. The rate environment has put a lid on speculative activity, which is healthy for the market. We’re seeing more disciplined underwriting and more realistic pricing expectations from buyers and sellers alike. Industrial and multifamily fundamentals remain solid in most SoCal submarkets. Office is still working through structural headwinds, but pockets of genuine opportunity exist for well-located, amenity-rich assets. The biggest variable right now is rate trajectory. If the Fed delivers meaningful cuts in the back half of 2026, deal velocity will accelerate quickly. Sponsors and investors who stayed active through this muted cycle and maintained their lender relationships will be best positioned to move.
Q: Any negative trends in commercial real estate currently that you hope will go away?
Diane C. De Felice, Shareholder, Brownstein Hyatt Farber Schreck: Even when agencies attempt to curtail land use barriers (i.e., allowing only neighbors within a certain area to challenge a project), there is no such barrier regarding CEQA, which is still weaponized under the guise of “environmental protection.” While environmental accountability is essential, the misuse of the statute has created a system in which even well-planned infill and transit-oriented developments face years of delay or become financially infeasible. For the underserved communities searching for jobs and better infrastructure support, this is a path to deterioration.
Skalaski: The construction industry’s workforce shortage remains one of our most pressing challenges. There’s no single solution to filling the talent pipeline, but at Shawmut, we’re committed to being part of the answer. We have longstanding partnerships with student leadership development organizations to spark genuine interest in construction and have started to engage with trade apprenticeship programs to help develop the next generation of skilled workers. We’re also focused on changing the perception of the industry itself so that more people see construction as a meaningful, viable career path.
Q: How are elevated interest rates and tighter lending conditions affecting commercial development, investment activity and deal-making in Southern California?
Lorch: Elevated rates have fundamentally reset the math on commercial real estate. Cap rates that made sense at 3% debt costs don’t pencil at 6% or higher. We’ve seen significant compression in transaction volume as a result – buyers and sellers have been slow to bridge the bid-ask gap. On the lending side, banks broadly are more selective about asset class, sponsor quality and exit feasibility. At Axos, we’ve stayed active throughout the cycle because we underwrite to fundamentals, not momentum. The result of the broader environment is a slower market but a sounder one. The deals closing today genuinely pencil, and that’s a healthier market to lend into.
Q: What are some of the other key opportunities and risks for developers in 2026?
Skalaski: Los Angeles has a unique opportunity to reverse the cycle of Downtown vacancy by reimagining obsolete office buildings as mixed-use and residential developments. With many commercial properties trading at significant discounts, adaptive reuse projects are becoming more financially viable than they have been in years. Realizing that opportunity will require continued partnership between the public and private sectors. Progress on permitting, code modernization, targeted incentives and investments that improve the Downtown experience can help unlock private capital and accelerate redevelopment. When the economic and regulatory environment aligns, developers can transform underutilized buildings into thriving communities that attract residents, businesses and activity back to the urban core. The result is a stronger Downtown, a healthier tax base and long-term value for the city and its residents.
The rate environment has put a lid on speculative activity, which is healthy for the market. We’re seeing more disciplined underwriting and more realistic pricing expectations from buyers and sellers alike.
— Michael Lorch
Q: How are sustainability initiatives, energy efficiency standards and other environmental expectations influencing tenant demand and investment decisions in commercial real estate?
De Felice: Sustainability and energy efficiency are now core drivers of tenant demand and investment strategy portfolios in commercial real estate. Corporate occupiers prioritize ESG-aligned, high-performance buildings, often paying premiums for assets that deliver lower operating costs, healthier work environments and verified certifications like LEED or WELL. For investors, building operating systems focusing on carbon limits as part of ESG is central to underwriting, valuation and risk management. That ensures asset strength, which leads to stronger long-term rents, occupancy and resilience. As climate regulations tighten, sustainability is no longer a differentiator – it is the baseline, with inefficient buildings facing growing obsolescence and valuation risk.
Q: What types of loan products are the most prevalent today?
Lorch: The product mix is shifting as rates stabilize. For the past two years, bridge loans and floating-rate debt dominated – borrowers wanted to avoid locking in long-term fixed rates near cycle highs, so they paid for flexibility and waited. The math is changing. As rates moderate, we’re seeing a real appetite for fixed-rate permanent financing from owners who now value cash flow certainty over optionality. The same instinct is driving demand for construction-to-perm structures, where locking in the take-out at origination strips out one of the biggest risk variables a developer carries. Sponsors who have been waiting on the sidelines are starting to move. What ties all of this together is structure. And that’s where a portfolio lender has the edge. They can build around a specific borrower’s needs rather than force a deal fit to a securitization template. In a market this complex, that matters more than ever.
Q: How are rising construction costs, labor shortages and insurance expenses impacting new commercial developments and redevelopment projects?
Skalaski: Rising costs, labor constraints and insurance pressures have forced owners to rethink how and when they move on projects. What we’re consistently seeing is that the developers finding success aren’t waiting for market conditions to improve – they’re adapting to them. The savviest owners across every sector are making decisive moves: locking in pricing early, securing materials before the next escalation cycle and assembling the right team before the market tightens further. Owners who engage the right team at the right stage are locking in savings; right now, hesitation is an expensive decision.
As climate regulations tighten, sustainability is no longer a differentiator – it is the baseline, with inefficient buildings facing growing obsolescence and valuation risk.
— Diane C. De Felice
Q: What opportunities are emerging for investors or developers who are willing to take calculated risks in today’s market environment?
Lorch: The opportunities are real, but they go to people willing to act before the crowd does. A few themes stand out for us. Office-to-residential conversion is the one everyone’s talking about, but few pull off well. In the right SoCal submarkets – where you have zoning relief and purchase prices that have reset far enough – the pieces are finally coming together. It’s not easy, and it’s not for every operator, but we’re paying attention. Value-add industrial remains compelling. Older buildings near the ports that need higher ceilings, more power or better loading docks still sell for less than their location is worth. That gap won’t persist forever. Data centers are drawing serious capital right now. Demand for digital infrastructure – driven by AI and cloud computing – is outpacing supply, and SoCal sites with reliable power and strong connectivity are genuinely competitive. We’re watching this sector closely. Hospitality is the quiet comeback story: Select-service hotels bought at a low price, with room revenue climbing back, are drawing lender interest again. What these have in common isn’t the property type. It’s the operator. Known and seasoned sponsors who know their business and strike zone inside out and have weathered downturns before will find banks willing to take a calculated risk. Experience is the underwriter.
Q: Which commercial sectors (office, retail, industrial, multifamily, hospitality) are performing strongest, and which are facing the biggest challenges?
De Felice: The two sectors that are “neck and neck” performance-wise are industrial and multifamily. The industrial sector (which includes the logistics industry) is driven by demand, while the need for immediate units is driving structural housing undersupply. Following those two leaders is retail, which is stabilizing, particularly the necessity-based and experiential formats. With office, post-COVID recovery remains the most challenging issue, with hybrid work continuing to reshape demand. Even major tenants are rethinking footprint – KPMG recently cut space while upgrading by shrinking its footprint to a collaboration-focused office in downtown L.A., reflecting this shift. Across all sectors, performance is less about asset type and more about quality, location and adaptability.
Skalaski: We are seeing investments in healthcare. California’s aging population is projected to have a dramatic increase over the next 15 years, and so healthcare facilities are looking ahead to ensure they have the spaces to deliver both necessary and differentiated services. Advances in care are also fueling investment across inpatient and outpatient facilities, with a focus on specialized services and environments that attract top providers. Wellness and longevity are also driving investment in healthcare, with bespoke alternatives to standard medical offices that deliver white-glove, valet services. While I do think it will rebound eventually, we are still seeing high office vacancies and a hesitation to invest in new workspaces outside of major building takeovers.
Q: Are logistics and warehouse properties still seeing momentum, particularly with e-commerce and port activity influencing the region?
De Felice: The industrial sector in Southern California isn’t slowing; it’s normalizing. The underlying drivers, such as e-commerce, port activity and population density, are still firmly in place. Where the market has shifted is from rapid expansion to more sustainable, long-term growth. The Inland Empire, with approximately 700 million square feet of industrial inventory, is one of the largest logistics hubs in North America. Approximately one in 15 workers in the region works in warehousing, making this industry an important economic driver to track. Despite this, and the creation of jobs and associated infrastructure improvements that come with larger-scale projects, industrial projects face continued backlash from CEQA challenges and community groups, ultimately delaying jobs, infrastructure improvements and increasing project costs. For investors and operators, success increasingly depends on location, building quality and alignment with modern logistics needs, particularly near key transportation nodes and last-mile corridors.
We may finally be approaching the end of the oft-cited narrative of flat industry productivity since World War II – and AI is the catalyst pushing us there.
— Greg Skalaski
Q: What financing challenges and opportunities are developers facing in the current market?
Lorch: Construction financing is the most acute pressure point in the market right now. Higher rates have compressed returns on new development, and a meaningful number of lenders have pulled back from construction entirely. On top of that, you have tariff-driven volatility in material costs: steel, lumber, electrical components. It’s not just that prices are higher; they keep moving, which makes a budget harder to judge the ultimate costs. Structure and length of sponsor help mitigate those risks. Developers who can demonstrate genuine cost certainty – through fixed-price contracts, proven general contractors and disciplined draw management – are finding financing more accessible than those who can’t. That’s always been true, but the margin for error is smaller today. On the opportunity side, bridge lending and structured debt solutions have expanded meaningfully. Borrowers who need time to stabilize or reposition assets are finding alternatives to traditional bank financing through debt funds and private credit. That’s not a bad thing – it’s the market finding its own equilibrium.
Q: What are businesses and investors looking for most from commercial properties today – flexibility, amenities, walkability, transit access, technology infrastructure or something else?
Skalaski: It’s currently a buyer’s market in Los Angeles, so businesses looking for commercial space have a lot of choices at similar price points. They’re looking for not only the best deals but the best experiences for their employees – from amenities and technology to walkability and transit access. Amenities and flexible technology infrastructure specifically enable tenants to provide the best experience for employees, increasing the desire to be in-office. Century City and Culver City are examples of where this has been done right, attracting businesses and seeing results with some of the lowest commercial vacancy rates.
Q: What role are public policy, zoning changes and local government playing in shaping the future of commercial real estate in Los Angeles?
De Felice: In the 2026 election year, and beyond, success in the building of new development (moving dirt) will require aligning project timing with evolving policy, community priorities and environmental goals – not just reliance on local market demand. This year especially, policy has become a defining force pushing project opportunities while revealing continuing constraints. The city of Los Angeles reflects this push/pull dynamic in processing projects. It aims to streamline permitting, while integrating agency cooperation and parallel approvals in efforts to reduce delays. At the same time, projects themselves face increasing costs associated with tax and insurance rates and continuous challenges that further delay building. If Los Angeles can implement policies supporting faster builds (i.e., housing mixed-use projects) and those with stronger ESG alignment, communities will benefit with better infrastructure, jobs and housing opportunities.
Q: What are the biggest hurdles preventing buyers and sellers from consummating deals?
Lorch: Valuation gap is the core issue. Sellers are anchored to 2021-2022 pricing; buyers are underwriting to today’s cost of capital. So a lot of deals stall at LOI. What’s starting to break the logjam is the wall of debt maturing in 2026 and 2027. Much of it originated at far lower rates. As those loans come due and refinancing proves harder, owners who can’t extend are being pushed to transact. That pressure is narrowing the bid-ask gap faster than sentiment shifts alone ever could. Beyond pricing, there’s execution risk. Even when buyer and seller agree on value, tighter lender appetite in certain asset classes – more recourse, higher reserves, lower LTVs – can change what a deal looks like between contract and close. The deals that close are the ones where the lender, buyer and seller aligned on expectations early, before anyone spent real money on diligence.
Q: What new trends do you foresee coming to our local industry by the end of this year?
Skalaski: We’re seeing the beginnings of AI’s effect on how we all work, and as that unfolds, we’ll see if and how new workflows require reimagined workspaces. On the construction side, our industry has historically lagged in technology adoption, but the last five years have marked a genuine inflection point. We may finally be approaching the end of the oft-cited narrative of flat industry productivity since World War II – and AI is the catalyst pushing us there.
