Commercial Real Estate Professionals Lower Economic Ratings as Capital Costs Rise

Half of respondents rate 2027 business conditions as good to excellent, down from 65% two years earlier, as interest rates and infrastructure assets reshape the sector.

By the Family Office Real Estate Daily Desk·Monday, November 2, 2026·2 min read

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What do commercial real estate professionals expect for business conditions and the biggest risks in 2027?

The PwC and Urban Land Institute 'Emerging Trends in Real Estate' survey found that 50.5% of commercial real estate respondents rated 2027 business conditions as good to excellent, down from 65% two years earlier. Nearly 89% of respondents identified interest rates and the cost of capital as among the largest problems. Infrastructure categories outscored every traditional property type in investment appeal.

Key facts

The PwC and Urban Land Institute 'Emerging Trends in Real Estate' survey found that 50.5% of respondents rated 2027 business conditions as good to excellent, down from 55% in the 2026 survey and 65% in 2025.
Nearly 89% of commercial real estate survey respondents identified interest rates and the cost of capital as among the largest problems in 2027, according to PwC and ULI.
Just over 65% of survey respondents named jobs and income growth as a major problem, while 63% cited inflation, according to the PwC and ULI survey.
The PwC and ULI survey found that infrastructure categories of commercial real estate outscored every traditional and niche property type, including industrial, office, multifamily and hospitality.
PwC and ULI wrote that the federal deficit and future debt trajectory will intensify competition for real estate capital and that U.S. Treasurys will likely offer yields that challenge core real estate returns.
A senior executive at a digital infrastructure firm told PwC and ULI survey takers that data centers cannot be evaluated the way an office building is evaluated because the tenants, capital expenditure cycle and obsolescence risk are on completely different timelines.

Commercial real estate professionals have grown less optimistic about business conditions over the past two years, according to the annual Emerging Trends in Real Estate survey produced by PwC and the Urban Land Institute. The survey found that 50.5% of respondents rated conditions in the 2027 report as good to excellent, down from 55% in the 2026 survey and 65% in 2025.

Developers, investors, lenders and operators describe an industry where every aspect of the business requires more work than it did a few years ago, PwC and ULI said. Nearly 89% of respondents identified interest rates and the cost of capital as among the largest problems in 2027. Just over 65% named jobs and income growth, while 63% said inflation.

When asked about social and political issues facing real estate in 2027, nearly 74% mentioned housing costs and availability, 52% chose immigration policy and 50% pointed to geopolitical conflicts. As for real estate development issues, 67% cited labor costs and availability, 57.5% said state and local regulations and 53% highlighted operating costs.

The survey's outlook barometer reached its highest reading ever, a result PwC and ULI attributed to two possible factors. The reading could reflect genuine conviction that the market has repriced sufficiently to create attractive entry points, particularly for participants with available capital and a long time horizon, the report said. It could also reflect deployment pressure, as fund timelines and capital partner expectations push activity regardless of conditions.

One issue broadly shared by respondents was the recognition that the sources of return have changed. Returns in the current environment depend more heavily on income growth, operational execution and the specificity of asset and submarket selection, the report said.

The federal deficit and future debt trajectory will intensify competition for real estate capital, PwC and ULI said. U.S. Treasurys will likely offer yields that challenge core real estate returns, and investment companies may question why they should take the risk of investing in real estate development. The result is anticipated difficulties for the industry and financial distress among specific real estate companies, though this is not a systemic crisis or a sector-wide collapse, the report said.

Infrastructure categories of commercial real estate outscored every traditional and niche property type in the survey, including industrial, office, multifamily and hospitality. Last year's survey outlined the rise of formerly obscure categories such as data centers, senior housing, self-storage, medical properties and single-family rentals into essential components of institutional portfolios. This year's report shows that some of the most compelling opportunities now sit outside the traditional categories of commercial real estate. Renewable energy, digital infrastructure and transportation all require massive infrastructure and capital investments, the report said. A senior executive at a digital infrastructure firm said in the survey that such assets require a completely different evaluation than traditional real estate assets. The regulatory environment is also becoming an increasingly important component of real estate investment and development, as rent regulations, insurance costs, permitting issues, energy and utility constraints and restrictions on institutional ownership all influence where capital flows and where it does not, PwC and ULI said.

The Deployment Angle

Family Office Real Estate Daily Desk · our analysis, not the source's

Family offices with deployment timelines longer than institutional fund structures can capitalize on the disconnect between sentiment and forced activity. The survey reveals that 89% cite interest rates as the top problem, yet the outlook barometer hit its highest reading ever. That gap reflects deployment pressure pushing institutional allocators into deals regardless of conditions, creating arbitrage opportunities for principals who can wait.

The infrastructure category scoring higher than all traditional property types signals a structural shift in how capital prices risk-adjusted returns. Data centers, renewable energy and digital infrastructure require underwriting frameworks that account for capital expenditure cycles and obsolescence risk on different timelines than office or multifamily. A senior executive at a digital infrastructure firm told the survey that evaluating a data center the way you evaluate an office building misses the tenant profile, the capex cycle and the obsolescence risk entirely. That complexity creates diligence barriers that favor direct investors over fund managers operating under time constraints.

Treasury yields that challenge core real estate returns compress the risk premium available on stabilized assets. When half of respondents rate business conditions as good to excellent and the other half do not, pricing discipline separates conviction from hope. The report notes that returns now depend more heavily on income growth and operational execution than on entry cap rates. That argues for separate accounts or programmatic joint ventures where the sponsor's operational track record is transparent and the hold period matches the income growth timeline, rather than blind-pool commitments where deployment pressure overrides underwriting rigor.

Regulatory risk now sits alongside interest rates as a core underwriting variable. Rent regulations, insurance costs, permitting issues and restrictions on institutional ownership influence where capital flows. State and local regulations were cited by 57.5% of respondents as a real estate development issue. That makes sponsor selection and market selection equally important. Avoid structures that require forced exits within three to five years when regulatory timelines are unpredictable. Price in the possibility that a jurisdiction tightens rent control or restricts institutional ownership mid-hold, and structure waterfalls that do not penalize extensions.

Questions this story answers

01What percentage of CRE professionals have a positive outlook for 2027 business conditions?

The PwC and Urban Land Institute 'Emerging Trends in Real Estate' survey found that 50.5% of respondents rated 2027 business conditions as good to excellent. That figure is down from 55% in the 2026 survey and down from 65% in the 2025 survey, reflecting a two-year decline in positive sentiment among developers, investors, lenders and operators.

02What are the biggest problems commercial real estate professionals expect to face in 2027?

According to the PwC and ULI survey, nearly 89% of respondents identified interest rates and the cost of capital as among the largest problems in 2027. Just over 65% named jobs and income growth, and 63% cited inflation. On development issues, 67% cited labor costs and availability, 57.5% named state and local regulations, and 53% highlighted operating costs.

03Are infrastructure and alternative real estate assets attracting more institutional capital than traditional property types?

The PwC and ULI survey found that infrastructure categories of commercial real estate outscored every traditional and niche property type, including industrial, office, multifamily and hospitality. PwC and ULI noted that renewable energy, digital infrastructure and transportation all require massive infrastructure and capital investments and are now attracting institutional capital.

04Is the distress in commercial real estate a systemic or sector-wide crisis according to the PwC and ULI report?

PwC and ULI contend the anticipated difficulties are not a systemic crisis or a sector-wide collapse, but a situational problem that may be tied to financing, ownership structure or the timing of the investment and not only from the asset itself. The report states the implications are showing up in how projects are financed, how capital is allocated, and how existing assets are valued and traded.

05How are demographic shifts expected to affect commercial real estate demand?

According to PwC and ULI, the aging population is creating new demand for senior housing and healthcare real estate. At the same time, a large segment of the U.S. population is reaching their mid-30s and moving toward buying homes. PwC and ULI also noted that household formation rates among young adults have decelerated while both structural undersupply and affordable undersupply of housing are occurring simultaneously.

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