The Impact of Rising Interest Rates on Commercial Real Estate Valuations

Interest rates remain the anchor for capitalisation rate expectations. When benchmark rates rose, required returns rose with them, and asset values adjusted downwards even where rental income held up. The question for 2026 is not whether that adjustment happened, but what the current rate environment implies for value from here.

What the 2026 outlook indicates

CBRE’s US outlook for 2026 expects cap rates for most property types to compress modestly — in the region of 5 to 15 basis points — with better-quality assets seeing more compression than the average. Office assets facing structural demand challenges are the exception, where upward pressure on cap rates may continue.

Investment activity is forecast to increase by around 16% in 2026 to approximately USD 562 billion, close to the 2015–2019 annual average. That matters for valuation practice, because a functioning transaction market restores the comparable evidence that thin markets remove.

Returns become income-driven

With benchmark rates expected to remain relatively elevated, the consensus view is that returns in 2026 will be driven by income rather than by further yield compression. In valuation terms, this shifts the weight of the analysis onto the durability of the income stream: lease length, tenant covenant strength, indexation, and the realistic cost of holding the asset.

It also raises the significance of asset management assumptions. Where a valuation depends on re-letting at a higher rent or on capital expenditure delivering a rental uplift, those assumptions now carry more of the result than the exit yield does.

The refinancing wall

A substantial volume of commercial real estate debt matures in 2026 — estimates point to close to USD 1 trillion in loans coming due — which is prompting increased refinancing activity.

This is the most immediate practical issue for lenders and borrowers. Loans originated in a lower-rate environment are refinancing into a higher one, against assets that may have repriced. Where the resulting loan-to-value breaches covenant, the valuation becomes the trigger for a commercial conversation rather than a routine reporting exercise.

Implications for valuation work

Sector dispersion is wider than the average. Multifamily and industrial are expected to attract the most investor interest, while industrial cap rates appear to have stabilised after several volatile years. A single market-wide assumption applied across a mixed portfolio will misstate individual assets.

Sensitivity disclosure matters more. When value is sensitive to a small movement in the discount or exit yield, presenting a single figure without showing that sensitivity understates the uncertainty the client is actually carrying.

Evidence quality is improving. As transaction volumes recover, valuers can lean less on inference and more on observed pricing — but only where the comparables genuinely match in quality, location and lease structure.