Issuu

Q2-2026

THIS REPORT IS PREPARED BY Writer: Teresa Marziano, Real Estate Salesperson

Executive Summary

SECOND QUARTER 2026

Resurgence of hostilities in the Middle East have dashed nascent hopes that inflation may be trending downwards. Oil prices are again rising, and near-term inflation expectations are likely to follow. This macro environment is developing at a time when profound changes are brewing in the US economy. Investors in general, and in particular, commercial real estate investors, are bracing for systemic shifts in the way financial markets price the cost of money. Over the last few years, and certainly since Covid, the Federal Reserve’s forward guidance, diminished, and sometimes silenced, the market’s discounting mechanism for interest rates. In retrospect, the Fed’s prior stance provided interest rate stability, very needed at times, and disruptive at others. Hindsight is always 20-20, and the entire world’s financial system struggled, in the aftermath of the pandemic, with the right way to cope with economic disruptions when unemployment appeared to be the greatest challenge to overcome. As we navigate current inflationary pressures, we reflect on the forces at work that so deeply altered price stability.

The supply shock rooted in Covid, was exacerbated by the geo-political conflict in Ukraine. Significant changes in the calculus of how global supply chains should operate ensued. Single, large-scale suppliers became a strategic liability rather than a source of cost advantages. A deeper understanding of risks embedded in supplier networks evolved, and a wide array of industrial and consumer goods manufacturers proceeded to redesign their supplier networks. Countries understood their vulnerabilities as they revealed themselves, in a painfully clear manner, when domestic shortages emerged and price increases in basic items followed. Reshuffling supply chains acted to encourage inflationary impulses, as the focus of companies and countries evolved toward securing supplies rather than lowering their input costs. The bond markets went for a long nap, as many believed that once reconstituted, supply chains would resume their drive to lower costs. However, armed conflicts, demographic changes, mass retirements and coming of age of millennials, created supply-demand aftershocks that have affected pricing across housing, health, and other markets, fueling already established inflation trends.

Early in 2026, tariffs, the Iran invasion and subsequent closure of the Strait of Hormuz, have dealt unexpected blows to price stability, across the world. Inflation has now gained deeper roots. In addition, investors have become increasingly worried about the ever-growing US Government debt.

However, despite the multiple shocks that the local and global economic systems have experienced, it is remarkable that long term inflation expectations have not moved meaningfully. The biggest challenges of all may still be in front of us. The upheaval that Artificial Intelligence (AI) build-out is creating is a topic of daily debate. Resource constraints of all types are emerging across municipalities, especially those in proximity to data-center construction sites. Labor markets may be completely altered going forward, but in ways we do not yet understand. And electricity demand is expected to balloon with an uncertain impact on inflation.

Back to the Federal Reserve and the outlook on interest rates, we see the change from Powell to Warsh as a profound shift, primarily because, under Warsh’s leadership, it will be the bond markets and other financial participants, not the Federal Reserve, who will interpret incoming economic data and guide the path of interest rates and the yield curve. In the immediate term, global markets have reacted by boosting the value of the dollar and selling gold signaling a belief that inflation can, in fact, be conquered and interest rates will remain higher for longer. In the medium to longer term, new technologies need to be implemented smartly and fairly to boost productivity and effectively offset the erosion in purchasing power that households, and the economy at large, continue to experience.

Executive Summary

An uncertain path is ahead for real estate investors as real estate is deeply impacted by current interest rates and the shape of the forward rate curve. In the immediate term, we observe that underwriting commercial loans, even in the securitized CMBS market, has shortened and five-year terms appear to be the issuers’ preference. Clearly, pricing term premium, beyond five years, has become exponentially more difficult. For commercial real estate owners, it is time to accept the higher for longer outlook, focus on polishing real estate operating skills, and excel in sustainable cash flow generation.

Despite what has been a year of disruption, CRE prices appear stable across the country. Westchester’s prices are firmer than the country’s average, in particular in the multifamily segment of the market. According to Trepp, multifamily prices weakened across both smaller and larger transactions. Institutional multifamily experienced the largest value-weighted decline from the 2022 level. This is not the case in Westchester, where multifamily assets have continued to experience value appreciation. Nationwide, industrial properties have remained resilient. Pockets of weakness observed earlier in the year appear to have been resolved. Similar trends have been in place in Westchester; however, a sub-set of large industrial assets that are not state of the art in terms of ceiling heights, highway and/or power access are facing a push-back from investors and tenants and need to re-price. Office assets are stabilizing, primarily led by CBD areas. In Westchester, weakness persists in B and C assets that cannot be retrofitted into attractive medical or alternative use. Retail assets continue to enjoy improving demand nationwide. Retail assets are strong in Westchester with the strongest appetite concentrated in smaller formats that offer flexible uses and sufficient parking.

According to Trepp, the willingness of investors and banks to lend to CRE has continue to get better: securitized lending rebounded with 2.1% QoQ growth (8.6% YoY) after a softer Q4, while banks grew 4.1% YoY and 1.0% QoQ, roughly in line with the Q4 pace as late-2025 rate cuts continued to feed through. Near-term maturities are concentrated on bank loans ($311 Billion). Securitized debt maturing through 2026 is approximately $186 Billion.

Westchester Residential Multifamily – Landlords Recover Pricing Power

Effective rents in Southern Westchester are raising, as supply-demand trends become, once again, beneficial to Landlords. Big picture, there is not enough housing in Westchester and sizable new apartment construction pipeline enjoyed remarkable absorption over the last three years, The last three quarters, characterized by low deliveries, have brought back tightness in the system, benefitting Landlords. Effective rent growth, year over year, has been positive for three consecutive quarters and over 3% in the second quarter of 2026. The pipeline of new construction projects recovered slightly in the second quarter and is currently estimated at 2.3% of stock. At the peak, in early 2023, new construction pipeline was estimated to be over 11% of stock.

Westchester Office – Holding on to Improvements

Westchester Offices had a good second quarter, where demand exceeded supply. Overall, this segment of the market is still experiencing headwinds, but their intensity is abating. Both direct and sublet markets had positive absorption and asking lease rates remained relatively stable.

According to Scotiabank Global Head of Real Estate and Corporate Services there’s a slow, quiet change happening in the office sector. A modest movement back towards more assigned seating and less flex seating is evident. This may be concurrent with employers in certain industries, such as financial services, putting more pressure on employees to spend time in the office. Employees may be craving stability and personalization, even if they still work from home for a portion of their time. An analysis of more than 27,000 workplaces by HubStar shows that the percentage of enclosed offices more than doubled from 4% in 2023 to 10% in 2025. This is notable but not yet large enough to change current office space dynamics.

Executive Summary

Westchester Retail – Occupancy Continues to Improve

Supply-demand fundamentals have been positive for several quarters, resulting in better occupancy trends. Leasing rates have moderated, demonstrating that landlords are prioritizing occupancy. Overall, retail trends in Westchester exceed national averages.

The strength of US consumers, in particular, affluent market segments, has attracted the attention of global wealth funds. An example is the recent investment by Norway’s sovereign wealth fund Norges Bank that invested $500M with Asana Partners to buy high-quality neighborhood retail assets throughout the US. Asana Partners, which has more than $9B in assets under management, and Norges are creating a fund called Asana Partners Strategic Partners I to hold the investments. The strategic partnership starts with a 50% stake in a portfolio of grocery-anchored retail centers throughout the country, In the future, the venture will target unanchored centers, street retail and mixed-used assets for investment.

Westchester Industrial -Lease Rates and Occupancy Moderate

Industrial supply demand has weakened in Westchester, and occupancy rates reflect a modest slack in demand. Lease rates have declined as the market tries to reach a balance. A combination of a moderation in demand and lower speculative activity in warehouses appears to be at the root of fundamental moderation.

According to Savills, deals for larger spaces, particularly leases exceeding 750,000 square feet, are driving industrial leasing activity at the national level, as big distributors and logistics users regain confidence after months of tariff and supply chain uncertainty. In Westchester, demand is mainly driven by last mile logistics meeting consumer demand and large warehouses are scarce. For now, a strong rebound in demand is not observable.

Investment Transactions- Hovering Around the Three-Year Averages

Last Quarter’s number of transactions, volume dollar of transactions and price paid per square foot are all hovering around the three-year averages. Cap rates generally sit in the high 6% to low 7% range, however, data is imperfect and many properties are sold empty, to owner-occupiers or to investors, for further re-positioning. In general, Westchester’s land and zoning constraints tend to put a floor of the property prices. Financing availability is tougher and cash bidders tend to win in competitive situations.

About this Commercial Real Estate Report

This report was researched and written by Teresa Marziano. Please contact Teresa (914- 441-2254) or (TMarziano@ HoulihanLawrence.com) for questions, comments or feedback about the contents of this report.

HOULIHAN LAWRENCE COMMERCIAL TEAM

Commercial real estate has entered a challenging period as low interest rate maturities start to come due. Interesting commercial real estate investment opportunities are likely to become available. Liquidity is only available for strong sponsors and poorly capitalized owners will seek to sell. However, there are numerous market and economic risks that will add to the complexities of acquiring commercial real estate. Understanding the market forces that are shaping the fundamentals for each property requires a deep knowledge of the property, local and regional insights, and close contacts with the right financial partners. Our Team is highly skilled in all these areas.

Reach out to HOULIHAN LAWRENCE COMMERCIAL for a complementary assessment of your real estate, an evaluation of a purchase target, and to receive an in-depth perspective on the ever-changing Westchester commercial real estate market.

Unemployment Rate in Westchester – At a Low Level but Some Deterioration

Unemployment rate in Westchester reflects healthy labor markets but headwinds emerging. Medical services, logistics and transportation are among the fastest growing sectors.

Westchester County Unemployment Statistics - Not Seasonally Adjusted

Sources: COSTAR, Trepp, US. Bureau of Labor Statistics, Unemployment Westchester County (Not Seasonally Adjusted) , NY. Real Estate Employees Data is Seasonally Adjusted. All data retrieved from FRED, Federal Reserve Bank of St. Louis; July 2026

Multifamily Projects: Deliveries Drop and Pricing Power

Returns to Landlords

WESTCHESTER, SOUTH OF I- 2 ��

Multifamily deliveries declined sharply, and the construction pipeline is at a low level consistent with the last few Quarters. Asking rents are now rising again. Shrinking new supply is supportive of pricing.

Sources: COSTAR, Trepp, US Bureau of Labor Statistics, Data Reflects Fundamentals for Westchester County Area South of I-287. Price Index for Westchester retrieved from FRED, Federal Reserve Bank of St. Louis; July 2026

Westchester Office and Retail –

Looking for Stability

WESTCHESTER, SOUTH OF I- 2 ��

Office occupancy and pricing are relatively stable. The office market is still trying to find stability among continuous change in corporate policies regarding location of work.

Retail rental prices are steady and occupancy is stabilizing. Focus on small and very productive spaces has increased.

Industrial Properties – Some Headwinds but Still Constructive

SOUTH OF I- 2 ��

Industrial fundamentals continue to seek stability after tariff related disruptions. Price has weakened reflecting lower demand.

Investment Activity Remains Weak as Uncertainty still Weighs on Investors

SOUTH OF I- 2 ��

Investment sale transactions number, median price PSF and dollar amount transacted are close to the three-year average. Capital markets continue to reflect tighter underwriting and scrutiny of deals.