CRE owners are choosing capex over price discovery

Deloitte's 2027 Commercial Real Estate Outlook, built on responses from 950 industry executives, reads on first pass as a story about caution. The finding underneath is narrower and stranger: capital is being held in place and spent on the buildings it already owns, rather than moving to new ones.

Read together, two numbers from the report describe the standoff: nearly 80% of respondents say they will upgrade or reposition existing assets over the next 12 to 18 months, while 46% anticipate no sales activity and 39% expect no conversions. The first figure is a spending plan; the other two are a decision not to transact, and a market that renovates what it holds while declining to sell or convert has stepped back from setting prices.

Sentiment data makes the same point from the other direction: Deloitte's index fell to 57.8, down from 64.9 and 68.3 in the two prior readings, a second consecutive annual decline, yet 51% of respondents still expect their organizations' revenues to grow by more than 5% over the next 12 months. Sally Ann Flood, a partner and Deloitte's US real estate leader, said the gap was what stood out: "The biggest surprise was the combination of declining business sentiment amidst relatively strong revenue expectations," she told Connect CRE.

Her reading is that respondents are not optimistic about the market as a whole but are confident in their own operations—"confident in their underlying operations along with their ability to outperform through selectivity, operating discipline and targeted investment," as she put it—which is a coherent posture for one owner, but held by thousands at once it becomes the posture of a market with no sellers. The report itself frames the tension as more capital available but "less certainty about where to deploy it."

The report names the hazard directly: putting money into "an asset with demonstrable tenant demand and achievable rent premiums" is, in Flood's words, "entirely rational," but the caveat is the part to underline: "The risk arises when repositioning becomes a way to postpone a more difficult decision." Deloitte's prescription is asset-by-asset triage—owners sorting holdings into upgrade, hold, convert or sell, instead of running one plan across a portfolio—and the survey's own numbers suggest that discipline will be difficult to enforce. A bloc of 46% that expects no sales is not triaging. It is waiting.

Waiting has a cost, and the cost lands on price discovery: as this publication has argued, office has found a clearing mechanism only where a trade actually prints, and in the Boston trade we covered in September, 32 leases with a weighted average term above ten years gave International Place the cash-flow case a lender could underwrite, and still no mark on the asset. When 39% of respondents rule out conversions and 46% rule out sales, the transactions that would produce those marks are the first thing taken off the calendar. What the survey describes is a market that has chosen not to produce a mark at all.

The rate backdrop explains why the choice is being made now: our September look at the Fed's path noted that a 4.1% median policy rate through 2027 pushes the refinance past the exit dates most deals were written to, and an owner facing a maturity two years out has every reason to spend on the asset in hand—buy time, hold the option, and wait for the exit window to widen. Flood's phrase for the same instinct, a desire to "preserve optionality and avoid realizing losses," is the polite version of that arithmetic.

Where respondents say they will deploy aligns with what the transaction market has been showing: logistics and warehousing ranked first among property types for opportunity over the next 12 to 18 months, with digital economy properties next and neighborhood retail improving on what the report calls "limited availability and development pipelines" that have supported occupancy and rent growth. That scarcity list is where our coverage of the industrial construction freeze has located the pricing power: a rents-and-scarcity trade, not a building trade. The Deloitte respondents share the diagnosis; they show little appetite to pay the entry price.

The report also marks where spending gets pulled back—office space and talent management, with slower rent growth expected alongside elevated vacancies—and cutting office-space outlay is itself an occupancy assumption, since renovating nearly 80% of a portfolio while forecasting higher vacancies means underwriting rent premiums the market has not yet delivered. Asset-by-asset triage is the right answer to that gap, and the survey is evidence that, so far, owners would rather carry the gap than resolve it.

For allocators, the read-through is about deal supply, though it is inference rather than measurement—Deloitte does not project transaction volumes or fundraising—and a market in which owners spend on what they already hold is a market with fewer assets coming to bid, thin supply for funds that need to deploy and a bid for capital that can finance a repositioning instead of buying a building. The 46% no-sales figure, if it holds, is the number that constrains the deal pipeline discretionary funds underwrite.

Taken together, Deloitte's 950 respondents intend neither to add a position nor to shed one—to spend into assets they own and let the marks stay where they were struck—and that holds only while everyone cooperates. The first owner in the bloc to break and sell into a soft bid does the pricing the rest have spent the year deferring, and settles whether the repositioning budgets went into assets that were worth more or into assets that had simply not been tested.