May 2026
Where the Consensus is Thin.
A tailwind with fewer beneficiaries, data centers running into political walls, build-to-rent finding a policy lifeline, and loneliness emerging as a retail thesis.
IN THE MARKET
Below the Print
Headline growth is holding up, but how much of it is reaching CRE tenants?
By every standard headline measure, the economy looks resilient as GDP grew 2.0% in Q1, unemployment sits at 4.3%, and the S&P hit a record high this month.
But for CRE owners and operators, broad resilience does not equate to strength of specific tenants or sectors. It matters where this growth is coming from, how much tenant demand is tied to it, and what happens if that demand pauses or shifts markets.
THE AI TAILWIND
AI-related capital expenditure is doing an unusual amount of work in the national numbers. Bridgewater estimates AI capex is contributing roughly 140 basis points to 2026 GDP growth and 150 basis points in 2027. Microsoft, Amazon, Meta, and Alphabet have collectively guided to roughly $725 billion of 2026 capex, up from approximately $400 billion in 2025. A growing body of economic outlooks document a genuine "two-speed expansion" with AI-intensive sectors surging while construction, manufacturing, and interest-rate-sensitive industries fall behind. Data centers were the lone bright spot in an otherwise weak 2025 construction market.
The labor market tells the same story from another angle. The information sector has shed 342,000 jobs since November 2022 and the hires rate has fallen to its lowest level since January 2011. We are in a low-hire, low-fire economy where unemployment looks healthy at 4.3% only because net immigration turned negative and the labor force stopped growing. AI capex contributes to GDP without the level of commensurate jobs from more traditional sources of growth.
WHAT THIS MEANS FOR CRE
The texture has specific consequences for specific property types.
Industrial has inverted faster than most aggregate reports suggest. Small-bay continues to hold below 5% vacancy. But big-box leasing (500K+ sq ft) surged 80.7% year-over-year in Q1 2026 per JLL, with the largest mega-box facilities driving the gains with asking rents up 14.5% annually. Since January 2025, vacant 1M+ sq ft warehouses have fallen from 54 nationally to 27, with half in lease negotiations. The drivers are 3PL consolidation, manufacturer re-tooling, and data-center-adjacent uses. Part of the industrial rebound is the AI capex story playing out one step removed from the data center itself, in the warehouses, fabrication facilities, and component logistics around the buildout.
In Office, tightening availability does not necessarily mean recovering demand. The information sector that historically anchored premium urban offices has been shedding jobs for years, and trophy leasing can look healthy while the employment base beneath it stays narrow. Manhattan trophy availability has been driven down in part by obsolete supply leaving the market through conversion and demolition. Owners should separate genuine tenant expansion from statistical tightening before underwriting rent growth.
For Multifamily, the gap between Class A trophy and workforce housing continues to widen. Trophy assets in supply-constrained markets are holding up, while workforce operators face pressure from weakening lower-income demand and operating cost inflation.
Retail's bifurcation between off-price/luxury growth and mid-tier collapse, which our April issue described, is another expression of the same two-speed pattern.
UNDERWRITING WHAT COMES NEXT
None of this is a prediction and the economy is not weak. Productivity growth is strong, consumer spending is still positive, and credible voices on the bullish side have been right by the headline numbers for two years.
But the honest question when underwriting new deals is how much tenant demand is borrowed from a macro tailwind concentrated in a handful of companies, and what happens if AI capex pauses or redistributes to other markets.
The valuation risk is that cap rates may be pricing broad resilience while NOI growth is tied to a narrower set of tenants, sectors, and capital budgets. The aggregate numbers should continue to look fine. The texture is the story to keep tracking.
ON OUR MINDS
i. Not in our backyard.
Denver City Council passed a one-year moratorium on new data center development on May 18, joining Larimer County and roughly 69 other jurisdictions nationwide that have paused or restricted hyperscaler buildout. The national capex story still holds, but the geography is shifting toward less-resistant markets. The next gigawatt has to land somewhere, but with the AI backlash growing, the question is where?
ii. Build-to-rent gets a lifeline.
The BTR saga continues as the House recently voted to strip a Senate provision that would have required institutional investors to sell newly constructed single-family rental homes within seven years of completion. Since the Senate added the provision, new BTR investment has ground to a halt. Will the latest version pass the Senate and re-open the BTR market?
iii. Loneliness as a leasing thesis.
As trends of a loneliness crisis expand across cohorts of the population, some CRE practitioners are looking for solutions. Can so-called "third places" - informal gathering spots like cafes, libraries, and parks - be used as tools to fight loneliness? And beyond the societal benefits, can these "social-centric" centers sustain CRE investments alongside or in lieu of more generic retail?
We remain grateful for your continued partnership and trust. If any of these topics hit close to home - whether it's a lease decision on the horizon, an acquisition or disposition question, or just a conversation about where the market is headed - we'd welcome the chance to think through it with you.
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