As we step into 2026, the Southern California development community gathered for a forward-looking panel to parse the data, separate the noise, and provide practical takeaways for the year ahead. Three themes were predicted: cautious optimism driven by selective strength across asset classes, a transforming capital markets backdrop, and the accelerating influence of AI on operations and strategy.

Moderated by Paul Giorgio COO & USC Adjunct Professor Eldridge Acre Partners, panelists included David Bitner, Executive Managing Director of Global Research Newmark; Matt Stewart, Senior Managing Director & Co-Head of Orange County Capital Markets JLL; Eric Willett, Managing Director of RCLCO Real Estate Advisors & USC Adjunct Professor; and Roger Yang, U.S. Industry Leader - Building, Construction & Real Estate of KPMG.

Macro Backdrop

5 Themes in the U.S. Economy

1. Economic activity has been inflated by the AI infrastructure boom;

2. The labor market is stagnant and overly reliant on healthcare for growth;

3. Inflation is still high and likely to remain due to delayed tariff impacts.

However…

4. Consumer spending has recently re-accelerated due to low unemployment, continued wage growth and stock market gains

5. Productivity rising, though it remains to be seen whether this is a durable trend

With little growth, a dash of productivity, and some policy uncertainty in the mix, Bitner painted a nuanced economic picture of the year ahead. After a strong 2024–2025 cycle influenced heavily by AI investment, the core question for 2026 is whether growth can broaden beyond AI-driven pockets. Labor market gains have been concentrated in healthcare, and hiring outside that sector remains muted. Yet consumer spending and wage growth are supportive, and recent signs of improving productivity — a likely byproduct of AI adoption — offer a potentially disinflationary force over time.

The most probable macro scenario the panelists sketched: modest growth (around 1–2%), sticky but gradually easing inflation, and one to two Fed rate cuts over the year. That outcome would likely keep the 10-year Treasury roughly around current levels, absent from a sharp policy-driven or geopolitical shock. Importantly, panelists emphasized the term premium — the market’s compensation for uncertainty — as a wild card that could prevent yields from dropping even if short-term policy eases.

Capital Markets

Transaction activity accelerated significantly in 2025, and the debt markets’ reopening was a central story. Lenders across product types are active, spreads have compressed, and competition is returning. That creates a window for buyers with ready equity to act, particularly on assets where ownership is fragmented or capital structures are stressed. Panelists believe 2026 may offer a compelling “buy” window, but success will vary by geography and asset class.

Office

Driven by flight-to-quality trends, stabilization, and redevelopment activity, the office sector emerged as a core area of differentiated performance. Leasing activity and net absorption finally turned positive in 2025, and high-quality (trophy and Class A) product is seeing real demand.

Supply dynamics amplify that divide: new deliveries in many top markets are constrained, and much of the limited new product is pre-leased. For secondary office, the path to stabilization likely requires redevelopment and repositioning rather than mere expectation of job-driven demand growth. The market could even see rising average transaction cap rates in the near term as previously stranded assets begin to trade.

Industrial

With market-by-market correction, but long-term structural support, the industrial market’s post-COVID boom has since moderated. Some submarkets — especially deeper inland areas — show oversupply and elevated vacancy, but core, well-located industrial remains in demand. The vast outperformance of industrial versus the index in prior years has eased, and returns have normalized. Expect a market-by-market story in Southern California, with development constraints (zoning, environmental, and political) supporting existing product values where barriers to new supply are meaningful.

Retail

Retail is back! Selective resurgence and redevelopment fueled a retail renaissance that surprised many. High-quality retail centers — especially experiential and grocery-anchored formats — are attracting institutional interest and strong rent dynamics. Across the board, owners are opting to retain tenants and stabilize occupancy rather than push aggressive rent growth.

Residential

Demand is expected to moderate in 2026, though supply and demand should remain balanced, supporting a stable outlook. The supply wave from 2024 and 2025 continues to pressure rent growth in high growth markets as new supply works through lease up. Overall, the market is expected to remain relatively stable, but deliveries reduced significantly in 2025 and are forecasted to continue to decline in 2026, creating demand opportunities in 2027 and 2028 potentially supporting increased investment demand in 2026 for new pipeline.

Artificial Intelligence

An operational multiplier, AI was a recurring theme both on and off stage. Right now, artificial intelligence's most immediate value lies in operations: centralizing unstructured data, automating routine tasks, enhancing property management, and accelerating analysis. For brokerage and asset management, AI can synthesize dispersed market signals into actionable insights. However, expectations were tempered around AI as a replacement for investment judgment. AI models are powerful tools, but do not substitute for deep local market knowledge and rigorous human decision-making.

Looking Ahead

For 2026, the consensus is cautiously optimistic. The convergence of stabilizing demand in office and retail, continued institutional interest in quality industrial, dropping residential deliveries will create a landscape of selective opportunities. Capital markets are broadly receptive but vary among asset classes. Several years of declining construction starts and contracting ABI are indicators for structural undersupply and should provide opportunities for increased demand.