This was supposed to be the year commercial real estate finally got some certainty.

Instead, the U.S. went to war with Iran, the federal government shut down twice, the 10-year blew past 4.5%, and America’s economy posted its hottest job growth in five months in August, pushing Wall Street to price in the cycle’s first rate hike later this month instead of the rate cut everyone had budgeted for.

Commercial real estate is the industry left holding that mismatch, just as $875B in commercial mortgages hit the year's maturity wall, many of them originated when rates sat at roughly half of where they are now.

Back in January, Bisnow mapped out 2026 as a year that, for once, CRE would see coming — a run of fixed dates on the calendar rather than the usual ambushes of “uncertainty.” That meant Fed meetings, tax deadlines, the Olympics, a North American World Cup and a U.S. midterm election.

The dates held, but almost none of the outcomes did.

Friday’s jobs report supplied the exclamation point. U.S. employers added 162,000 jobs in August — nearly triple the roughly 56,000 that economists had penciled in — while June and July payrolls were revised up by a combined 55,000, Bloomberg reported. The unemployment rate held at 4.1%.

“The labor market ended the summer with more momentum than expected, easing concerns about labor-market weakness and tilting the Fed toward a rate hike if inflation remains hot,” Sam Williamson, senior economist at First American Financial Corp., said in commentary circulated to reporters Friday. 

That is the opposite of the story CRE has spent much of the year underwriting to.

The Rate Story Flipped

In January, the safe bet was a slow drift toward lower interest rates. Instead, the U.S. and Iran went to war, sending oil prices higher, inflation stayed sticky, and the Federal Reserve chair the White House wanted as a rubber stamp for cuts turned out to have his own ideas.

Kevin Warsh was confirmed in a 54-45 Senate vote — the narrowest for a Fed chair in the modern era — and sworn in on May 22. The funds rate has held at 3.5% to 3.75% since December, including a July hold when three governors dissented in favor of a hike.

Then came Jackson Hole on Aug. 28, where Warsh signaled that inflation isn’t cooling fast enough, and that one speech flipped pricing overnight to 60%-plus odds of a hike at the next FOMC meeting Sept. 15-16. Friday’s jobs number should push those odds higher still, with Williamson saying next week's consumer price index print “will likely be the deciding factor.”

The 10-year Treasury, the number that sets CRE loans, has been telling its own version of this tale. It topped 4.8% last week, the highest since late 2023, before easing to 4.74% Thursday on dovish comments from Fed Governor Christopher Waller. Part of that climb traces to the war, which is six months old and still flaring, but a bigger factor is the artificial intelligence build-out.

The mechanism is simple enough: Tech companies are borrowing enormous sums to build data centers, and bond investors only have so much money to go around. Every dollar they put into a tech company’s bonds is a dollar not going into U.S. Treasurys — and now traditional buyers are pulling back, too, with Norway’s $2.3T sovereign wealth fund, the world’s largest, proposing Friday to cut its Treasury holdings by roughly $80B. 

Squeezed from both sides, the Treasury has to offer a higher yield to keep attracting buyers. 

Investment-grade companies have sold nearly $1.5T in bonds this year, up 36% year-over-year, with roughly $200B of that from the biggest tech firms alone. Nomura estimates that tech borrowing now soaks up a quarter of all the new Treasury notes and bonds sold to private investors, five times the share it held a year ago. 

That matters for real estate because commercial mortgages are priced off the same Treasury yields, so even if the Fed sits still in a few weeks, this two-sided squeeze is enough to push up the cost of financing a building.

The result is that deals underwritten to “lower for longer” need a second look. Cap rates that were expected to loosen are more likely to stay sticky, and the repricing is already showing up in rising foreclosures on financially stressed households and in undercapitalized middle-market sponsors — the ones least able to absorb a rate that didn't move the way they modeled.

Washington Shut Down Twice

This wasn’t supposed to be a surprise, exactly. In January, Bisnow flagged Jan. 31 as the date federal funding expired and noted, dryly, that commercial real estate “doesn’t need another shutdown.” It got two.

The first was a four-day lapse over a stalled Department of Homeland Security bill, and it barely registered because last fall’s shutdown had just set the record for longest in U.S. history, so four days felt routine by comparison. 

But the second wasn’t. After federal immigration agents fatally shot two U.S. citizens — Renee Good and Alex Pretti — days apart in Minneapolis, Senate Democrats withheld Department of Homeland Security funding pending reforms to Immigration and Customs Enforcement and Customs and Border Protection. Talks collapsed, and the department — which also includes the Transportation Security Administration, Federal Emergency Management Agency and Secret Service — went unfunded from Feb. 14 to April 30. 

At 76 days, that's the longest single-agency shutdown on record.

For CRE, the sharpest effect ran through flood insurance. The lapse froze FEMA’s ability to issue or renew National Flood Insurance Program policies — coverage legally required to close a federally backed mortgage in a flood zone. The National Association of Realtors estimates a lapse like this can hold up roughly 1,300 property sales a day nationwide, concentrated in Florida, Texas and Louisiana.

It also landed on an office market with additional exposure baked in: More than half the federal government’s leased footprint sits open to expiration or termination before 2028 — the backdrop that D.C. landlords with federal tenants were navigating long before Washington shut down for the second time in three months.

Congress, notably, wanted no part of a third round heading into November. The House passed a bipartisan funding bill 370-48 on Sept. 1, extending funding through Dec. 11 — past Election Day. After the longest shutdown in U.S. history, neither party had much appetite for another showdown right before voters went to the polls.

A Hot Economy Cuts Both Ways

The U.S. economy is accelerating.

The S&P Global Composite Purchasing Managers’ Index hit a 52-month high in August, the strongest expansion since April 2022. Meanwhile, corporate profits are running strong, and AI infrastructure spending has climbed into the hundreds of billions — money that’s translating directly into the land grabs, power deals and construction activity that made data centers Bisnow’s most dominant story of the year.

That’s good for tenant demand and hospitality spending and bad for anyone whose debt assumed further rate drops. Williamson’s read on housing captures the crosscurrent: A stronger labor market gives households “the income and confidence to move,” but “elevated mortgage rates will still determine how much of that pent-up demand can translate into sales.”

Redfin’s numbers back that up: New listings hit a four-year high in late August, while pending sales have flatlined near their lowest level since February.

Developers, stymied for much of the year by elevated construction costs, are starting to bet on the upside. Hines, the $92B global real estate giant, is shifting back to ground-up construction after years of mostly buying instead of building.

“We’re seeing those development profits pencil,” said Managing Partner Alfonso Munk. “It’s a really good entry point.”

4 More Things From The Summer

Tariffs kept squeezing construction, and the fight with Canada turned hostile. “You’re at war when you get attacked. We got attacked,” Canadian Prime Minister Mark Carney said after trade talks with the U.S. collapsed in late August. Going even further, Ontario Premier Doug Ford declared he had “a lot of real estate on my ass, so [Trump] has a lot of room to kiss my ass.” Behind the theater, contractors have absorbed real pain since Trump’s “Liberation Day” tariffs in April 2025 — U.S. materials prices are up 7.4% year-over-year, with steel up 17.6% and copper up 17.9%, while Canada’s own counter-tariffs on U.S. steel and aluminum have pushed its construction costs to a new, structurally higher baseline. The AGC found that 43% of contractors have had a project canceled or scaled back over tariffs. Now it’s compounding: Canada is expected to retaliate on Sept. 8 on U.S. steel and pulp and paper.

The biggest federal housing bill in two decades became law. The Senate’s March version of the 21st Century Road to Housing Act would have forced build-to-rent operators to sell properties after seven years, a change NAHB estimated could have threatened 40,000 BTR units a year and one that froze financing industrywide while Congress fought over it. The House stripped the provision in May, and the final bill became law on July 11 without Trump’s signature. Ultimately, the bill restricts large institutional investors from buying single-family homes, with an exception preserved for build-to-rent, but it wasn't the game-changer either side expected. “I don’t see anything that's going to meaningfully turn the tide,” Marcus & Millichap CEO Hessam Nadji said at the time. NMHC President Sharon Wilson Géno, who was en route to the signing ceremony when Trump first balked, put it similarly: “It’s going to be really impactful for a deal here or a deal there.”

Opportunity Zones 2.0 has a ticking deadline. Bisnow’s First Draft Live show with Steve Glickman warned that this window would separate winners from also-rans, and it's now open. Governors' nomination periods began July 1 and run until Sept. 30. Treasury will certify the winning tracts by the end of the year, and the new designations take effect Jan. 1. Because this won’t happen again for 10 years, developers and sponsors sitting in eligible tracts who miss the window don’t get another shot until the mid-2030s.

Regulation moved. Legislation didn't. The DOJ's case against RealPage is edging toward resolution, with the company agreeing in a settlement to stop feeding its pricing algorithm current, nonpublic competitor lease data. But the judgment still isn’t final. A Tennessee class-action suit remains live, and several state attorneys general have filed suits of their own. Elsewhere, crypto’s Clarity Act, whose CRE financing implications Bisnow flagged last summer when it appeared that legislators were about to make a move, stalled again in August with no floor vote before recess. “I’m a bit pessimistic about the Clarity Act being passed,” fintech firm SALT CEO John Darsie told CNBC last week. That will likely push real estate tokenization questions into 2027.

Coming Up

U.S. midterm elections are on Nov. 3. Control of the House Financial Services Committee and Senate Banking Committee shapes bank capital rules and antitrust posture into 2027. Two CRE fights are also on the ballot: Data center opposition has already become a bipartisan campaign strategy around the country, and a record six statewide housing measures are being voted on, including a Massachusetts initiative to end the state's 32-year rent control ban. Bisnow’s analysis, though, suggests that election-year anxiety rarely moves national leasing or transaction volume, even when local fights are real.

The check is finally coming due. The final deferred-gains deadline under the original OZ framework is on Dec. 31. It’s separate from the OZ 2.0 nomination window above, and the Treasury is expecting to add tens of billions of dollars to its coffers from OZ investors.