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The mood in real estate has shifted, and not quietly. After a frustrating and uneven 2025, capital is moving again. Liquidity has improved, lenders are competing for quality loans, transaction volumes are rising, and investors are no longer treating every real estate decision as an existential risk. That change in psychology matters, because real estate cycles do not turn on headlines. They turn when capital stops hiding.
Private markets are telling us the same story. Loan spreads have tightened, banks are back at the table, and buyers are leaning forward instead of waiting for forced sellers. Investor sentiment measures have moved decisively into expansion territory, reaching their strongest levels in roughly two years. Allocations are increasing across property types, not collapsing into cash. This is not a speculative frenzy. It is a recognition that the worst-case outcomes so widely feared a year ago are increasingly off the table.
What stands out most is the breadth of stabilization. Retail, industrial, apartments, and even office are seeing renewed interest. Apartment and office values declined modestly over the past year, but expectations have stabilized. Investors now anticipate only marginal additional weakness in apartments and improving conditions elsewhere.
Underwriting assumptions for net operating income have turned meaningfully more optimistic, with most models now assuming annual NOI growth north of 2% and often closer to 3%. Exit cap rates are generally assumed to remain stable, signaling that returns are once again being driven by income growth rather than leverage or financial engineering.
The macro backdrop remains mixed, but it is no longer paralyzing. Economic growth has slowed toward trend, not collapse. Consumer spending remains resilient, even as labor markets cool. Inflation has moderated, financial conditions have eased at the margin, and capital markets are functioning again. This is not a return to easy money. It is a market defined by differentiation, discipline, and balance sheets that can withstand higher-for-longer rates.
That environment favors exactly the kind of REITs held in the Flagship REIT Portfolio.
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