Morgan Stanley Real Estate Investing (MSREI) considers the current moment ideal for investments in US commercial property, particularly in the industrial, retail, and seniors housing sectors. Tony Charles, global head of research and strategy at MSREI, explained the key findings from Morgan Stanley Investment Management's Mid-Year 2026 Real Estate Outlook.
Following a four-year recessionary period, commercial properties are being revalued, offering investors the opportunity to acquire prime assets at attractive prices. At the same time, supply is decreasing across the market. Megatrends such as artificial intelligence, the realignment of global supply chains, and an ageing demographic also open up attractive entry points into the infrastructure, retail, and seniors housing sectors.
Charles expressed confidence about the beginning of a new upturn cycle in real estate: "We are quite confident we are entering the next up-cycle for real estate. It's an attractive entry point." He added that current prices are below replacement costs, which reinforces confidence in the next generation of investments. The recent downturn in the US property market, which began in mid-2022 with the Federal Reserve's interest rate hike, represented the longest slump since the 1980s and early 1990s. Four years later, prices are still down by an average of 20 per cent.
Signs of market recovery and megatrends
Despite persistently high interest rates, positive developments are discernible. Supply has been drastically reduced, which benefits the property market. A strong macroeconomic foundation – US GDP grew by 2.1 per cent year-on-year in the second quarter of 2026 – shows initial signs of recovery. Transaction activity in the US commercial property sector increased by 23 per cent year-on-year, institutional investor capital raising by almost 40 per cent, and commercial property lending by approximately 20 per cent.
Charles and Morgan Stanley Investment Management challenge the widespread assumption that property performs poorly during periods of high interest rates. Indeed, the sector suffers when interest rates rise. However, as rates have remained high for an extended period, the market has adjusted. "Cap rates have already adjusted. Provided higher rates are due to stronger growth and demand-led inflation, fundamentals are performing well," Charles stated. The Morgan Stanley report suggests that the Federal Reserve, under its new Chairman Kevin Warsh, has shifted its priorities from unemployment back to inflation and will keep interest rates high for now, as long as inflation remains an issue. Higher interest rates can also put pressure on the capital structures of property owners, leading to sales and thus acquisition opportunities for high-quality assets at lower prices.
Focus on industrial, retail, and seniors housing
The Morgan Stanley report highlights that commercial property has achieved total returns above the rate of inflation in five out of seven periods of high inflation since the 1970s, primarily driven by low supply. The current situation with increased construction and financing costs is expected to slow down new development, tighten future supply, and thus support rent growth and value appreciation of existing assets. With no new supply coming on stream, occupancy will remain high, leading to better rental metrics for owners and investors. Increased construction and financing costs make it harder for developers to realise new projects.
The report gives particular attention to three sectors: industrial, retail, and seniors housing. Charles refers to global megatrends associated with increasing deglobalisation in a multipolar world. This has led to a complete reorganisation of global supply chains, which began during COVID-19 and accelerated due to geopolitical events. Companies are striving for greater supply chain resilience and relocating the production of critical goods back to strategically important regions. The industrial sector plays a central role here, especially in areas such as aerospace, high-tech manufacturing, and biopharmaceuticals.
- —Physical AI applications such as drones, robotics, and autonomous driving.
- —Industrial rents in Silicon Valley rose by 45 per cent within three years.
- —AI is massively driving e-commerce, with annual growth of 12 per cent.
