A couple of things at the end of the summer - by William Pastuszek, Jr.

Generalizations about Real Estate Markets. Always dangerous. All real estate is local, except when it isn’t, right? Often, we get so mesmerized by the sheer volume of data out there that we forget the best data is right in front of us and that informed, hard-won valuation judgment and experience beat generic big data, especially in small markets.  

But, having said that, here we go with some generalizations. They may be helpful in getting a handle on today’s uncertain markets only when accompanied by accurate localized information.

Commercial Real Estate. It’s a strange environment out there. Deals are getting done but everybody seems to be expecting something further to happen, possibly something bad.

While interest rates remain important in driving and shaping commercial real estate activity, they are not the only factor influencing investment decisions. 

Treasury yields declined during early 2026 which simulated investment activity. The Middle East conflict reversed the trend. Treasury yields and oil prices rose dramatically and kept inflation, uncertainty and volatility as drivers of investor psychology. Most recently, bond markets represent another threat. Investors now face possible rate increases to counteract uncertainty and persistent inflation.

Cap Rates and Risk. Since late 2022, high borrowing costs created challenges for buyers and sellers and lenders across all property types. Noteworthy in this cycle (and historically) is that cap rates don’t always move in lockstep with the price of debt. While the mortgage payment represents a large demand on a property’s cash flow, there’s more to a cap rate than simply the mortgage. Investor confidence and liquidity, property fundamentals, capital availability (and viable investment alternatives) as well as local market conditions are important factors. 

Market Segments. Using industrial as an example, there’s a noticeable (and obvious) difference in market preferences in industrial markets between larger assets that attract big capital and “shallow bay” markets, i.e., smaller properties that attract local investors or owner users. 

The strength of this investor segment is particularly evident in smaller transactions, i.e., $1-$10 million, where transaction activity had strong gains. The high end of the market showed strong gains, with the remaining middle showing lower gains. There is more interest in owner-user purchases and build-to-suit projects where owner-users balance continued high rents against long-term ownership benefits. On a property-specific level there is the obligation to delineate market segments appropriately and make apple to apples comparisons when reviewing competitive properties. Cap rates, vacancy, and rents are going to operate differently for the 50,000 s/f market versus the 250,000 s/f market. Construction markets for the various segments are also going to differ. Generalizing about the “industrial” market may lead to inappropriate conclusions that just don’t hold up under further scrutiny.

Residential Form Changes. This must be mentioned at least in passing. In a couple of months, appraisals for the secondary market will need to be done using a new reporting format, UAD 3.6. This is the most significant change in residential appraisal reporting in nearly two decades. Without getting deep in the details, the multiple residential appraisal forms are replaced with a workflow that adapts to the particular property type. This change is not universally welcomed particularly by many, and the rollout has not been entirely smooth.

Artificial Intelligence. It’s so easy to use and so easy to misuse. As a tool, it provides awesome efficiencies and organizational and analytic improvements. As a replacement for critical thinking and the last mile – human judgment, experience, intuition – it bears careful consideration. More on this later.

Conclusions. Looking at the big picture is not wrong. But, at the property specific level, whether you are an investor, appraiser, lender, assessor, or other, it’s essential to drill down to a level to understand how market forces specifically affect a particular property. Generalizing is easy – and kind of fun – but while being convenient and satisfying, it can lead to erroneous assumptions.

Thank goodness I don’t have to try and sort out what is going on in college sports!

William Pastuszek, Jr. MAI, ASA, MRA heads Shepherd Associates LLC, Needham, Mass.