Treasury yields are surging, and the war with Iran keeps debt costs elevated. Commercial real estate, which entered 2026 with a $113 billion Q1 transaction volume and plenty of hope, is now seeing that momentum stall. Confidence is cracking, and forecasts are being revised down.

The Big Picture

Q1 2026 was a relief rally for US commercial real estate. With $113 billion in transactions, investors dared to believe the sector had turned a corner after two years of repricing. But the relief was short-lived. A sharp run-up in Treasury bond yields — fueled by the Iran conflict and expectations that the Federal Reserve will keep rates higher for longer — has pushed financing costs up and sucked the air out of the recovery.

Dealmakers who had penciled in cheap debt to underwrite acquisitions are now facing a world where capital is more expensive and valuations are under pressure. The war in the Middle East adds a layer of uncertainty that no spreadsheet can fully hedge. Loan origination desks are already reporting a slowdown in applications, and some of the sunnier forecasts from January are being walked back. Office markets in cities like San Francisco and Chicago, where vacancy rates exceed 25%, are particularly vulnerable. In contrast, data centers in Northern Virginia and warehouses in California's Inland Empire still attract capital, though at tighter valuations.