Global real estate faces headwinds in 2026

MSCI’s latest analysis suggests that global real estate markets will face ongoing challenges throughout 2026. 

Higher interest rates and limited liquidity, combined with attractive returns from private credit and infrastructure, are diverting investors away from real estate equity. This shift is making it increasingly difficult for traditional equity strategies to gain momentum.
There are significant differences in performance across various real estate sectors and individual assets. Because real estate and infrastructure often share similar return profiles, careful asset selection and precise leverage assumptions have become crucial.
Furthermore, rapid technological advancements—particularly in data centres—are increasing capital intensity and the risk of asset obsolescence. This evolution highlights the need for a granular analysis of both equity and debt within real-asset portfolios.
Since 2022, real estate debt has consistently outperformed equity. This trend is driven by debt's senior position in the capital structure, superior downside protection, and high demand from investors seeking stable income. Institutional investors are currently favouring infrastructure and private credit over real estate equity, particularly in the US market, where debt strategies offer a more robust buffer against volatility.
The year 2026 is expected to be demanding; any recovery in real estate capital markets will likely be slow and steady rather than a "quick bounce back." However, as asset prices adjust and markets stabilise, new opportunities are emerging.
Slowing inflation and lower interest rates are creating better conditions for price discovery.
Certain segments are beginning to look reasonably priced, especially where strong income growth is forecast and debt is accretive.
Transaction activity remains hampered, as liquidity in real estate capital markets stays well below long-term averages.
The lines between real estate and infrastructure are increasingly blurred by assets such as science facilities, care homes, hospitals, and data centres.
Data centres, in particular, face significant obsolescence risk due to the intense cooling and power requirements of AI training and inference. AI-ready fit-outs have dramatically increased development costs per megawatt. Given this capital-intensive nature, investors must now account for higher depreciation rates when valuing these assets.