INSIGHTS

On January 12, 2026

Eleven BIG Themes For 2026

Happy new year! As we kick off 2026, BGO has identified 11 themes (not 10 but 11 big themes because, well, these go to 11!) to watch for in the year ahead. Some are centered on the macroeconomy, while others focus more on commercial real estate (CRE).

Key Themes

1) A Recession Is Still NOT Inevitable — We have held this view since 2021 before interest rate hikes began. Many prognosticators got this call wrong over the last few years, and it is becoming fashionable once again. To be fair, the economy isn’t perfect, but it is maintaining momentum as we head into 2026. From lower interest rates to huge capital expenditures to supportive fiscal policy, the economy’s support structure suggests it will take something noteworthy to knock it out of expansion.

2) The Inflation Endgame is in Sight — After a massive inflation shock, a significant deceleration, and then a disruption from trade policy, the end of this inflation cycle is finally in sight. It will take time for policy changes to stop reverberating, but excluding trade-policy effects, inflation is already likely at target. This would certainly hold true if housing inflation were measured more accurately. But what comes next? More measured monetary policy changes, greater tolerance from central banks to accept inflation volatility and asset inflation (if not outright bubbles), and the return of the importance of real interest rates.

3) Capital Scarcity Remains But is Easing — Capital scarcity (at least at an attractive cost) is starting to ease. The last few years have seen extensive recrimination, with equity markets claiming that debt capital is scarce and expensive and debt markets claiming that equity capital is scarce and expensive. But with the Fed cutting a cumulative 175 basis points (bps) thus far, and the 10-year Treasury yield down about 80 bps over the same period, capital markets have thawed and availability has increased. And private capital should continue its ascendency as public capital remains less of a force in the economy than in recent decades.

4) Deglobalization Is Capital-Intensive — While it sometimes gets overstated, the world is pushing back against the globalization of the prior few decades. But it is doing so in a very capital-intensive way. Redundant supply chains, more inventory buffers, and greater awareness of national security-related goods and services (including defense spending) are pushing back against the efficiency of the last few decades. While the U.S. has recently experienced some retrenchment of this capital build, it still marks a reversal from the last few decades. We expect this shift will remain in place for the foreseeable future.

5) Labor Market Frictions Driving This Cycle — Overall, headline data suggests that the labor market looks healthy. Unemployment rates have ticked up since their cyclical bottoms but remain low. Yet frictions in the labor market have been increasing and creating cross currents. The world (especially advanced economies) has had to deal with an aging workforce and a corresponding reduction in labor supply. Skill mismatches and geographic immobility have both increased, further exacerbating the supply problem. All of this has led employers to hoard workers, especially after great difficulty in hiring after the pandemic. But then economic uncertainty increased, reducing global labor demand, and lower immigration-restricted U.S. labor supply. And the rise of artificial intelligence (AI) has thrown a huge wild card into the game. These frictions are causing the labor market to move slowly, suppressing economic growth, but not causing an outright recession.

6) China’s Trade Surplus Is a Pressure Valve, not a Growth Engine — China recently recorded the largest trade surplus in history, more than $1 trillion. But this is not the triumph for the world economy that it might seem. The surplus largely stems from excess productive capacity in China, weak domestic demand, and capital controls that prevent adequate internal rebalancing of the economy. With the U.S. playing hardball on trade policy, the rest of the world (predominantly Europe and other parts of Asia) is now having to absorb Chinese imports at very low prices. That runs the risk of hollowing out productive capacity and will likely spur more durable changes in trade policy.

7) AI is a General-Purpose Technology Shock — AI is either a massive shock that is going to upend labor markets or a disappointment, depending upon who you ask. But maybe it is both, in certain respects. Almost everyone is trying to adopt this technology as quickly as possible but that is running headlong into legacy workflows, knowledge gaps, legal and compliance constraints, risk aversion at scale, and unclear return-on-investment attribution. Even if AI can do the work, some organizations are struggling to reorganize around it. That is slowing the impact on metrics like jobs, productivity, and margin improvement. That might give labor time to adjust, but companies will likely still throw gigantic amounts of capital at this technology, even if the input/output function isn’t as clear as many would like. AI is transformative but adoption is coming in fits and starts.

8) A Fundamental CRE Shift — CRE fundamentals have undergone a shift over the last few decades. Before the early 1990s, downturns and volatility primarily came on the supply side, from overbuilding. The S&L Crisis is a prime example but even the CRE downturn of the late 1970s/early 1980s arose from a multi-year development wave that began in the mid-1970s. It just got masked by high inflation and interest rates. But over the last few decades supply growth has stayed relatively stable and where overbuilding has happened, it has remained more specialized or localized. That has made demand more impactful in determining the health of CRE fundamentals. As supply growth further abates this year, demand will take on even greater importance.

9) CRE Capital Markets Regime Change — As we discussed many times over the last few years, the CRE capital markets regime of the last few decades — very low interest rates, deep liquidity, beta/appreciation-driven returns — has disappeared and we anticipate will not return any time soon. In its wake a new regime has emerged, one that focuses on asset management and income returns, disciplined underwriting, patience, and advanced research and data science. We expect 2026 to push farther into that new paradigm.

10) Alternative Property Types Moving from Niche to Core — This is really a push and a pull. Investors are pulling away from office (some structural impairments, however overstated) and retail (operationally intensive, income-focused, large-asset scarcity), leaving only two of the four major food groups strongly represented. And even those face some localized oversupply and pricing challenges. At the same time, shifting demographics, technology, healthcare delivery systems, and energy and data intensity are pushing investors toward other property types. Taken together, these forces are expanding what could be considered core real estate and those forces are durable, which means we should expect more of their impact in 2026.

11) Distress Is Idiosyncratic, Not Systematic — Investors waiting for widespread distress have been disappointed this cycle. They could be disappointed again in 2026. Why? Because distress in this cycle comes from idiosyncratic factors, not systematic forces, which limit distress’ ability to spread. That’s not to say that distress won’t increase, but this isn’t a post-Global Financial Crisis world. Systematic distress looks like correlated failures, widespread forced selling, evaporation of liquidity, and collapse of price discovery. This idiosyncratic distress, by contrast, has asset-specific failures, sponsor-specific leverage problems, market-specific and property-type-specific supply/demand issues, and refinancing cliffs that hit some properties, but not all properties.

Taken together, these themes show a world where there seems to be more uncertainty in the exact path forward for the macroeconomy than for the CRE markets. That should present some exciting investment opportunities in 2026.

CRN: 2026-0108-13102 R