2026 Development Themes

Overview

The economic uncertainty and uneven performance across real estate sectors that marked 2025 obscured a more fundamental shift: the economy's primary growth engines are changing, and with them, the logic of where and how to develop commercial real estate.

In previous cycles, economic growth translated more directly into job creation, and job creation in turn supported broad-based demand for space across various markets and property types. Today's primary growth engines work differently. AI infrastructure, automated logistics, and advanced professional and technical services increasingly concentrate economic output into smaller, more specialized footprints that require different (and often more intensive) infrastructure. A data center processes billions of dollars in transactions on a few acres. An automated fulfillment facility can handle several times the volume of a conventional warehouse in the same space. The highest-earning workers now expect office amenities that would have been considered excessive a decade ago.

This shift toward greater capital intensity reshapes development strategy. Demand for space is no longer explained solely by traditional measures of economic activity, but by whether a building can support specialized, capital-intensive uses. The relevant measure of supply isn’t total inventory; it’s the share of that inventory built to meet these demands. Properties that deliver the necessary functionality are poised to thrive; those that cannot risk being left behind in the rapidly evolving landscape.

1. Data centers show how capital intensity constrains supply

Data centers are among the most capital-intensive real estate property types, yet their feasibility is driven less by traditional real estate fundamentals than by the ability to overcome multiple constraints simultaneously. Unlike conventional development, where tradeoffs can be optimized, data center projects become unviable if any single requirement, particularly power and related infrastructure, cannot be delivered.

Because power and transmission capacity are planned and allocated years in advance, data center supply is largely restricted by infrastructure availability and is only partially responsive to price signals (i.e., even strong demand and high returns can’t accelerate supply if the infrastructure isn’t in place). What ultimately matters is not how visible or compelling demand appears, but whether a project can realistically be delivered given existing infrastructure capacity and timelines.

In 2026, this distinction will become increasingly important as the sector matures and investors scrutinize pipelines more closely. Development opportunities will be shaped less by projections of demand and more by practical execution, including control of sites, access to infrastructure, regulatory certainty, and the ability to deliver on schedule. In a sector now accounting for a significant share of economic growth, this shift carries implications that extend beyond individual projects.

2. Accelerated industrial obsolescence and the next supply cycle

The lease-up of new industrial supply softened in early to mid-2025, fueling concerns about oversupply. While supply has been elevated, we believe this narrative overstates the degree of structural imbalance. Leasing activity was likely affected by economic and trade uncertainty, which tends to delay supply-chain investment decisions, making it difficult to distinguish between deferred demand and actual loss of demand.

What appears to be oversupply might be better understood as an inventory mismatch. Vacancy is increasingly concentrated in buildings that fail to meet modern operational requirements, while demand remains firm for high-function space. After all, tenants consume functional capacity—not square footage—which could include throughput, circulation, power availability, and/or automation compatibility. Moving forward, obsolescence is no longer limited to legacy stock; a growing share of relatively recent deliveries will likely prove to be misaligned with tenant demand.

This gap will widen as industrial real estate continues to evolve into a productive asset rather than a passive container. AI and robotics are accelerating this shift, raising requirements for power density, layout, and operational efficiency. This transition will be capital-intensive, raising barriers to entry. Headline vacancy and absorption figures will tell only part of the story. A modernization cycle will likely coexist with elevated vacancy in obsolete stock, relatively slower leasing volume, and highly selective new development.

3. Office viability narrows to where capital and talent converge

After years of uncertainty, the office market in 2025 arrived at something closer to a steady state. The debate over whether office is “dead” or “coming back” has largely run its course, and return-to-office dynamics are now likely to have only marginal influence on future demand. Moving forward, that demand will be driven less by remote work policies or total employment growth, and more by the nature of the work itself (i.e., does it require collaboration, client interactions, and/or high productivity talent?). While this results in fewer office users overall relative to the pre-pandemic norm, it also produces clearer signals around why space is being used and where demand can persist.

For development strategy, this shift significantly narrows the set of buildings that can compete for tenants. Viability becomes increasingly location-specific, not market-dependent. In that sense, a broad office market “rebound” is not required to justify new development. That case can be made by identifying areas where both capital intensity (where revenue per worker justifies premium rents) and talent concentration (where skilled workers are clustered and benefit from proximity) coexist. Importantly, neither condition is sufficient on its own. There must be tenants who are willing to pay premium rents for new space because their business model supports it, and there must be a reason for them to pay because physical proximity creates added value.

4. Multifamily demand may depend more on labor force composition than job growth

As economic growth becomes more capital-intensive, income gains tend to be concentrated among higher-productivity workers. This has direct implications for multifamily demand. Class A and A+ product increasingly serve households tied to these sectors: residents with higher incomes, greater willingness to pay for location and quality, and a preference for flexibility over ownership. This demand is more durable because the tenant base is less price sensitive, but it is also more geographically concentrated near specific employment centers.

This helps explain why we are seeing higher-end apartment performance diverging within metros, even within challenged markets characterized by broad rent losses in recent years. Cyclical weakness resulting from heavy supply deliveries should not overshadow the fact that the strongest submarkets over the long run are those closest to capital-intensive employment clusters. Access to that labor pool is critical. As a result, Class A/A+ buildings are increasingly competing for a specific, geographically-bounded set of renters.

Looking ahead, we believe that Class A performance in 2026 will be driven less by a broad demand recovery and more by whether a site is situated in the right part of the labor market. In an economy where economic value and income growth are increasingly concentrated, being in the wrong location within an otherwise healthy market is likely to matter more than it did in prior cycles.