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2026 Real Estate Outlook: Where to Find Yield in a Higher-Rate World

Cap rates have expanded, but not uniformly. Our metro-by-metro analysis reveals pockets of value in industrial, multifamily, and self-storage— and sectors to avoid.

January 3, 2026
18 min read

Key Takeaways

Cap Rate Expansion
+50-150 bps
Across sectors since 2022
Top Sector
Industrial
Best risk-adjusted returns
Opportunity
Sunbelt
Migration-driven markets
Avoid
Coastal Office
Structural headwinds

The New Reality: Higher for Longer

The era of 3% cap rates is over. After a decade of cap rate compression fueled by falling interest rates, the market has reset. Buyers now demand risk premiums that reflect a normalized rate environment.

This isn't all bad news for investors. Higher cap rates mean better going-in yields and more margin of safety. The key is knowing where value has emerged—and where prices haven't adjusted enough.

Sector-by-Sector Analysis

Not all real estate is equal. The post-pandemic economy has created clear winners and losers.

SectorOutlookCap RateYoY ChangeNotes
IndustrialStrong5.8%+40 bpsE-commerce tailwinds persist, but new supply arriving
MultifamilyModerate5.5%+60 bpsRent growth slowing, concessions returning in some markets
Self-StorageStrong6.2%+30 bpsResilient demand, limited new supply in most markets
RetailSelective6.8%+20 bpsGrocery-anchored thriving, malls still challenged
OfficeWeak7.5%+150 bpsWork-from-home structural shift, distress opportunities emerging

Top Markets for 2026

Population growth, job creation, and limited supply define our top picks. These markets offer the best combination of yield and growth potential.

Dallas-Fort Worth, TX

Strong Buy

Corporate relocations, population growth, diversified economy

Nashville, TN

Strong Buy

Healthcare hub, migration magnet, limited supply pipeline

Tampa, FL

Buy

Florida migration, insurance-adjusted pricing creates entry points

Phoenix, AZ

Buy

Semiconductor reshoring, data center demand, population growth

Charlotte, NC

Buy

Financial services growth, affordable relative to peers

Markets to Avoid (or Wait)

Some markets look cheap for a reason. Structural issues or oversupply mean pain may continue before opportunity emerges.

San Francisco, CA

Office vacancy crisis, policy uncertainty, population outflow

Austin, TX

Overbuilt multifamily, rent declines, needs time to absorb supply

Seattle, WA

Tech layoffs impact, tax policy concerns, elevated supply

Investment Strategy

Our recommended approach for 2026:

  • Focus on cash flow: In a higher-rate environment, speculative appreciation plays are riskier. Prioritize deals that cash flow from day one.
  • Sector selection matters: Industrial and self-storage offer the best risk-adjusted returns. Avoid office unless buying at deep discounts.
  • Migration markets: Follow the people. Sunbelt metros with population growth will outperform.
  • Watch debt markets: Refinancing risk is real. Scrutinize loan terms and maturities on any acquisition.

Bottom Line

2026 offers attractive entry points for patient capital. Cap rates have expanded to levels not seen since 2015. Focus on quality assets in growing markets, prioritize cash flow, and be selective on sector. The distress wave in office may create opportunistic plays later in the year.

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