4Q25 Newsletter
Presented by VLR Capital Partners
2026 Market Outlook
Fed Funds Rate & Industrial Real Estate: 2026 Expectations
A comprehensive analysis of monetary policy trajectory and commercial property sector performance for private investors
Fed Funds Rate: Baseline Path for 2026
Most major forecasters anticipate the federal funds rate drifting lower while remaining well above the near-zero levels of the 2010s. Year-end 2026 projections center around 3%–3.5% versus approximately 3.75% today.
Goldman Sachs
Projects two additional cuts in 2026, taking the funds rate to a 3%–3.25% terminal range after earlier easing in 2025.
Fed Dot Plot
December 2025 meeting implies a slightly higher 3.25%–3.5% end-2026 range—effectively just one more cut from current levels.
Deloitte
Sketches a gradual path toward a neutral rate near 3.1% by late 2026, trimming quarter-point at a time unless data deviates sharply.
Why the Fed Remains Cautious
Even after several cuts in 2025, inflation has been slow to return fully to the 2% target, and the labor market remains merely "cooling" rather than weak. Fed officials have signaled that some disinflation progress reflects one-off factors.
Underlying wage and service-sector pressures could re-emerge if policy eases too quickly. This leaves the Committee biased toward a "hawkish cut" posture—willing to lower rates modestly as growth slows, but determined to keep them high enough to avoid:
  • Reigniting inflation pressures
  • Unanchoring long-term inflation expectations
  • Forcing a policy reversal later
The Leadership Transition in 2026
Jerome Powell's term as Fed chair ends in May 2026, and President Trump is widely expected to nominate a successor with a more dovish, growth-focused tilt.
1
Frontrunner Candidates
Kevin Hassett, Michelle Bowman, Chris Waller, and Rick Rieder are circulating as potential nominees—each with distinct policy leanings.
2
Shadow Chair Period
Once a nominee is announced, markets will pay more attention to incoming chair rhetoric than Powell's remaining meetings.
3
Market Implications
Historically, such transitions shape expectations well before formal takeover, nudging yields and financial conditions in anticipation.
How a New Chair Could Shift Expectations
Dovish Scenario
If a clearly dovish figure like Hassett is confirmed, investors may price in a faster cutting path—four to six quarter-point cuts over 2026, potentially taking rates toward or below 3%.
Credibility Defense
If inflation re-accelerates or markets question Fed independence under new leadership, the Committee may slow or pause cuts to defend credibility.
Investor Impact
Forward curves and long-term yields may swing more sharply around Fed meetings and nomination headlines, requiring heightened duration sensitivity.
Chapter 2
Industrial Real Estate
Leading the 2026 Rebound
Industrial: Strongest CRE Performer in 2026
Institutional outlooks consistently flag industrial and logistics as moving from a brief "air pocket" of oversupply into a renewed growth phase.
62%
Construction Decline
From 2022 peak
220M
Net Absorption
Square feet projected for 2026
37%
Absorption Growth
Higher than 2025 levels
Where Industrial Demand Is Strongest
Infill & Last-Mile
E-commerce and same-day delivery continue driving demand. Nearly 60% of U.S. markets showed YoY industrial rent growth in 2025—nine with double-digit gains.
Small-Bay Multi-Tenant
Smaller-format properties show much lower vacancy than national average. Diversified tenant base and shorter lease terms enable faster repricing.
Specialized & Data-Adjacent
Onshoring, nearshoring, and AI infrastructure expand manufacturing footprints. Power and zoning constraints create above-trend rent growth potential.
Quality First: Operational Excellence Matters
This is a stock-picker's market where "quality first" and strong sponsorship matter more than ever.
— Josh Myerberg, J.P. Morgan Asset Management
In the industrial context, this translates to:
  • Modern, well-located logistics and light-industrial assets
  • Dock-high loading, clear heights, adequate power capacity
  • Operators who drive leasing velocity and control expenses
  • Using volatility to upgrade into higher-quality product
Key Takeaways for 2026
1
Fed Funds: High-But-Lower Environment
Borrowing costs ease from 2023–2024 peaks, but mortgages, corporate loans, and cap rates settle above pre-pandemic norms. Expect rates near 3%–3.5% by year-end.
2
Political Volatility Premium
Leadership transition adds volatility risk—forward curves may swing sharply around Fed meetings and nomination headlines. Duration decisions require heightened political sensitivity.
3
Industrial Outperformance
With new deliveries falling to an eight-year low and demand expanding, high-quality industrial should outperform most other commercial property types in the next cycle phase.
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