Adapting to the New Market: Commercial Purchase and Sale Trends in California Real Estate

Mature businessman walking and using laptop at empty office for sell at real estate visual concept for a blog discussing commercial real estate outlook and trends.

Whether you’re a developer, investor, business owner, builder, or lender, it’s crucial to keep up to date with the trends in the commercial real estate industry. Looking forward into 2026, analysts anticipate economic stabilization and slow, tempered growth. In the new year, market operations are expected to normalize — and investor confidence will likely increase. While there is less demand for traditional office space post-pandemic, conversion to mixed-use space is accelerating and strong long-term demand is expected in the industrial sector. The retail commercial sector continues to evolve with experiential and hybrid models.

Here are some of the key factors that may impact the commercial real estate outlook as we head into 2026:

Loan Maturities

A substantial number of commercial real estate loans are set to mature in 2026. While many of these loans originated at a time when interest rates were low, borrowers are now pressured to refinance at much higher rates. Borrowers who are unable to make payments due to higher costs and lower revenues may face default, foreclosure, and distressed sales.

However, the maturity wall can also create opportunities. Distressed investors can acquire properties that are not being refinanced at favorable prices. While lenders may become more cautious, those who can provide new capital will increase profitability and market share. Developers and investors should prepare by monitoring their portfolios, considering alternative structures, and implementing strategies to adapt to the changing conditions.

Policy Uncertainty

Several policy shifts at both the state and federal levels are expected to affect valuations, deal flow, and strategy in connection with California’s 2026 commercial real estate outlook. Some of the regulatory changes and developments to be aware of include:

  • New state building and energy standards — Part of the 2025 Title 24 Energy Code, new state building and energy standards will go into effect on January 1, 2026, raising compliance costs and accelerating retrofits for a substantial number of commercial buildings.
  • Threats to the “Split Roll” initiative — Proposed “Split Roll” reforms would eliminate the protections of Prop 13 for commercial and industrial properties. This means property taxes would no longer be limited to 1% of their value and could increase by more than the annual cap of 2%.
  • Tariffs and supply-chain issues — In 2026, the commercial real estate market may experience considerable volatility as a result of tariffs, supply chain issues, and cost pressures. Tariffs could significantly increase the total project costs and higher material costs could lengthen the duration of project timelines.

Investors will see several positive impacts as a result of the recently passed legislation, the “One, Big, Beautiful Bill Act.” The 20% Qualified Business Income deduction, which many investors use, has been made permanent by the Act — offering a key tax advantage. In addition, the Act permanently reinstated 100% bonus depreciation for eligible commercial property which reduces upfront tax burdens. California investors will also benefit from the increase in the SALT deduction cap, which allows a greater portion of their state income and property taxes to be deducted from their federal returns.

Declining Interest Rates

The decline in interest rates going into 2026 is anticipated to significantly impact California’s commercial real estate industry outlook. As rates fall, property values may increase as a result of lower borrowing costs, which can lead to compressed cap rates. The rate cuts can also help restore investor confidence in the market, resulting in more acquisition and investment activity. However, investors should be prepared to assess risk and maintain flexibility in their financing strategies in order to be able to adapt to changing market conditions and address potential gaps when it comes to refinancing.

Inflation

Although inflation is trending downward, it may continue to affect the commercial real estate industry outlook in California in 2026. While inflation has resulted in higher operating costs and interest rates, some investors may remain cautious amid market stabilization. Many investors are also becoming more selective during the period of gradual recovery, choosing to invest only in sectors where there is a strong risk/reward — rather than investing in the broad market.

How White & Bright Can Help

From multi-million dollar acquisitions to broker disputes, quiet title actions, and negotiating commercial leases, the California commercial real estate attorneys at White and Bright, LLP have extensive experience handling a broad range of commercial real estate matters. We represent property owners, developers, lenders, borrowers, commercial landlords, brokers, investors, and others involved in the commercial real estate sector. Contact us online via our chat form or call (760) 747-3200 to schedule a consultation to learn how we can assist you.

Categories: Real Estate