House View H1 2026
Recovery is happening, but differentiation is increasingly asset specific. In our H1 2026 House View, we discuss why submarket selection, asset quality, and execution matter more as performance converges across sectors.
The U.S. economy entered 2026 on generally solid footing, just not for the same reasons as prior expansions. AI and data center expenditures have emerged as a powerful growth engine, helping balance a softening labor market and a more polarized consumer. While risks remain, the foundation for a functional, steady recovery is in place, and real estate markets are beginning to reflect that shift.
A New Growth Mix for the Macroeconomy
Economic momentum is increasingly defined by AI-related investment, which matched the consumer contribution to GDP Growth at the midpoint of 2025 and marked a critical shift in where growth could come from moving forward. With job creation coming from a more concentrated set of industries and tariffs introducing pockets of potential inflation, this new growth driver has become critically important to macro stability and thus the real estate sector’s prospects.
Unemployment remains low, yet conditions feel tougher under the surface – fewer new jobs, fewer industries adding headcount, and fewer opportunities for entry-level workers are all adding pressure to a large swath of the consumer base. Even so, the broader economy is absorbing these pressures, and with some upsides in the form of deregulation boosts and modestly supportive fiscal policies, we expect moderate, steady growth through 2026.
Real Estate Implications
Despite some of the macro crosscurrents, signs of recovery are entrenching in real estate capital and property markets. Investor sentiment is improving, as evidenced by the 45% year-over-year uptick in lending activity in the three months through October and the rise in deal volume.
While long-term yields remain range-bound and inflation expectations holding above pre-2020 norms, today’s real estate values reflect both discounts to recent peaks and discounts to replacement cost, setting the stage for compelling entry points across many sectors.
Though the recovery is happening, we believe this recovery is less “riding tide” and more “targeted lift”, suggesting a much more nuanced approach to real estate this cycle than perhaps in previous early-stage recoveries. Our H1 2026 House View outlines the influences redefining the opportunity set for investors, and the precision required to execute on it across sectors.
Residential
Vacancies remain below long‑term averages, with supply pressures easing. We believe submarket and asset‑level selection are increasingly critical to outperformance.
Industrial
Despite tariff volatility, tenants are making decisions again—especially favoring modern product. We believe development feasibility hinges on permitting timelines and speed to revenue.
Office
Occupancy improvement is occurring, but from a low base. AI‑driven efficiencies and slower entry‑level hiring remain long‑term headwinds.
Retail
Grocery‑anchored centers remain competitive; we believe value-oriented formats stand to benefit as consumers remain selective.
Specialty
Demographically driven sectors—seniors housing, manufactured housing, and self-storage—may offer durable cash flow with manageable capital intensity.
The Bottom Line
The recovery feels functional, but not frothy. The current stage of the cycle has the hallmarks of the 1990s vs. the 2000s; that is, steady but not rapidly compressing cap rates, and returns driven by income and operations – not capital markets.
We believe opportunities today benefit from both discounted entry pricing and thinner construction pipelines, positioning disciplined strategies for the next leg of the cycle. We think opportunity is there, but it requires intentionality.
Disclaimer
The information in this presentation is as of January 7, 2026, unless specified otherwise and is for your informational and educational purposes only, is not intended to be relied on to make any investment decisions and is neither an offer to sell nor a solicitation of an offer to buy any securities or financial instruments in any jurisdiction. This presentation expresses the views of ARA as of the date indicated and such views are subject to change without notice. The information in this presentation has been obtained or derived from sources believed by ARA to be reliable but ARA does not represent that this information is accurate or complete and has not independently verified the accuracy or completeness of such information or assumptions on which such information is based. Models used in any analysis may be proprietary, making the results difficult for any third party to reproduce. Past performance of any kind referenced in the information above in connection with any particular strategy should not be taken as an indicator of future results of such strategies. It is important to understand that investments of the type referenced in the information above pose the potential for loss of capital over any time period. This presentation is proprietary to ARA and may not be copied, reproduced, republished, or posted in whole or in part, in any form and may not be circulated or redelivered to any person without the prior written consent of ARA. Photos used in this presentation were selected based on visual appearance, are used for illustrative purposes only, are not necessarily reflective of all the investments made by ARA or which ARA may make in the future.
Forward-Looking Statements
This newsletter contains forward-looking statements within the meaning of federal securities laws. Forward-looking statements are statements that do not represent historical facts and are based on our beliefs, assumptions made by us, and information currently available to us. Forward-looking statements in this newsletter are based on our current expectations as of the date of this newsletter, which could change or not materialize as expected. Actual results may differ materially due to a variety of uncertainties and risk factors. Except as required by law, ARA assumes no obligation to update any such forward-looking statements.
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