At the end of 2024, the commercial real estate industry was gleefully optimistic. The Federal Reserve had lowered interest rates three times, and with a new business-friendly administration coming into office, there was an expectation that rates would continue to fall.
Of course, that forecast did not come to fruition. Instead, The Federal Reserve held rates steady in 2025 until September, when the committee made three rate cuts. The activity, again, gave commercial real estate investors and developers optimism about the interest rate environment in 2026. However, The Federal Reserve held interest rates steady in January and March. Sound familiar? The patterns are almost identical.
The yo-yo effect of rates falling and then holding has eroded the confidence and stability that commercial real estate developers need to move forward on projects. But, there is good news. While 2026 may not see sharp decreases in the short-term rate, we are entering a period of stability. Here, we’ll take a closer look at interest rates forecasts and trends this year—including a new Federal Reserve Chair—and look at the financial markers beyond the Fed Funds rate.
Interest Rates Enter an Era of Stability
Although interest rates began a downward trend at the end of 2025, most economic forecasts predicted The Federal Reserve Open Market Committee would keep the short-term interest rate unchanged in the first quarter of 2026. So, the year began with measured optimism, compared to the unbridled exuberance of 2025. That is a major differentiator. The industry is expecting a year of stability, not dramatic change.
Experts expect The Fed to decrease interest rates as much as two times this year. Goldman Sachs’ detailed forecast estimates rate cuts will come in June and September, leaving the Fed Funds rate at a range of 3%-3.25% for the year. CBRE, likewise, predicts two rate cuts for the year, ending in the 3% to 3.25% range, although it does not offer an estimate of when those cuts will arrive.
J.P. Morgan, on the other hand, offers a more conservative forecast, predicting no rate cuts this year, closing at a range of 3.5% to 3.75%. In either scenario, experts agree that there will be minimal rate cuts this year and no rate increases. JP Morgan did predict the next rate increase, pegging it in the third quarter of 2027.
The FOMC seems to be most aligned with this outlook. At the end of the March meeting, Fed Chair Jerome Powell said that the median forecast from FOMC board members pegged the interest rate at 3.4% at the end of 2026 and 3.1% at the end of 2027. The Fed remains concerned about balancing elevated inflation and a weak job market, and it is taking a hawkish stance.
Based on these forecasts and the Fed’s decision to keep interest rates unchanged in January and March, developers should not expect a meaningful change of interest rates this year. However, there is still reason for optimism. “The proposition that rates are restrictive looks increasingly untenable given economic and financial developments,” Michael Feroli, Chief US Economist at J.P. Morgan, said. In other words, developers will see greater access to capital and reduced volatility on capital costs.
A New Fed Chair Could Shift Expectations
In January, President Donald Trump appointed Kevin Warsh as the next Federal Reserve chairman, to replace Jerome Powell when his term ends in May. Warsh previously served as a board governor from 2006 to 2011, in the aftermath of the Global Financial Crisis. During his previous tenure with The Fed, Warsh was generally in favor of sustaining elevated interest rates; however, his recent comments seem to support a case for cutting rates. This dynamic has created some opacity about Warsh’s monetary policy position.
Some sources have noted Warsh’s historical hardline stance on inflation and outspoken concern over the Fed’s swollen balance sheet leanings that could put upward pressure on interest rates. Still, President Trump has been clear about his expectation of lower rates, and he has selected a chair that he believes will align with his monetary policy. With that in mind, many experts to expect the year’s first rate cut will come in June after Warsh takes office in May.
Looking Beyond Interest Rates
Commercial real estate developers have been justifiably focused interest rate trends over the last couple of years. Interest rate movements have significantly increased capital costs for new construction and exacerbated market volatility. While interest rates will likely remain higher this year than in the previous business cycle, the rate stability will be a welcome change this year, and will support more new construction opportunities.
Developers are already making moves in response to the changing rate environment. At the end of 2025, new construction starts were up 36%, largely driven by healthcare and data center development, and in December, new multifamily starts peaked for the year. Increased interest rates stability this year along with other improving economic fundamentals will help continue to push construction projects forward.
But, developers don’t have to rely on market shifts alone. Savvy developers are taking control of their environment by leveraging advanced technology tools like Northspyre that create valuable efficiencies in development project management, leading to real, meaningful cost savings.
Tools like Northspyre’s scheduling assistant, that tracks project progress and assigns tasks in real time; financial forecasting and modeling to keep the project on budget; and predictive analytics for cash flow and funding are all opportunities for developers to cover come market challenges, like higher interest rates, and gain a competitive edge.
