An Argument for Not Fearing the Relative Slowdown in US Deal Activity

U.S. commercial property sales grew 14% year over year in the second quarter of 2026, though dropped relative to the first quarter of the year.¹ This relative decline is not a certain sign of gloom and doom, but likely rather an investor reaction to lower levels of returns in the current market.   When investment returns are high and climbing, investors will often get interested in a sector and jump in to chase those gains. The chart shows that returns in commercial real estate are simply less exciting than they were in the past.

With the exception of retail, returns over the last four quarters have trended well below levels seen from 2015 to 2019, when the economy was growing and social distancing was a term none of us had heard.

So rather than gloom and doom, the slowdown in deal volume looks like a simple leveling off of deal flow following the market's recovery phase. Without falling interest rates, the wind is not at one’s back on cap rates. And without a strong signal from the economy, the income side will not be as robust. Deals will likely still happen, but it is more of a stock picker's market.