Sentiment in the commercial real estate finance market recovered during the second quarter of 2026 following an earlier 20% decline due to the Iran war that began during the first quarter, according to a survey by the CRE Finance Council (CREFC).

The survey’s sentiment index rose a modest 0.9% to 101.0, from 100.1 in the first quarter of 2026. The results show the sentiment index is above the baseline of 100, which indicates a generally neutral to positive attitude toward the market.

The CREFC survey, which was taken between June 25 and July 6, reveals market sentiment stabilizing after the Middle East conflict led to a major decline in market attitudes earlier this year.

The council found that a neutral response was the most common answer to seven of the nine core questions asked of respondents. Demand-side sentiment remained positive, with 42% of respondents expecting stronger investor demand for commercial real estate and multifamily projects, and 11% anticipating less investor demand.

About 45% of respondents expect greater borrower demand for financing, while 13% foresee less. The council interprets the results to mean investors and borrowers are moderating from unusual expectations rather than retreating from the market.

Economic sentiment recovered from a negative reading in the first quarter of this year, with 58% of respondents predicting the U.S. economy will perform the same over the next 12 months, while another 18% expect it to improve. About 24% think the economy will perform worse.

The attitude toward interest rates remained gloomy, with 53% of respondents expecting elevated mortgage and cap rates to have a negative impact on interest rates. At the same time, 37% anticipate a neutral impact and 11% expect a positive impact.

Expectations for commercial real estate fundamentals improved considerably, with 53% envisioning no change from current conditions. Only 11% think fundamentals will deteriorate, a major reduction from the 22% of respondents who foresaw the market deteriorating in the first quarter.

Federal policy expectations were neutral to positive, with 47% of respondents predicting a neutral impact from federal legislation and regulatory actions, and 26% forecasting a positive impact. Only 26% expect future federal policies to be negative to the sector.

Market liquidity also appeared on stable ground. About 71% of respondents expect no change, while 24% are banking on improved liquidity. Only 5% predict worse liquidity conditions, down from 23% in the first quarter.

When asked which rate-related factors will most constrain commercial real estate lending and investment in the second half of the year, 47% said rate volatility and uncertainty, while 45% said interest rates staying higher for longer.

About half of respondents expect banks to grow back-leverage and repurchase lines to private credit and debt funds. An additional 37% say banks will likely expand direct loan originations to regain market share. Just 8% expect banks to stay defensive with commercial allocations either at current or declining levels.