Distressed commercial-property sales volume increased in the first nine months of 2026, led by apartment buildings as owners faced sustained pressure from elevated borrowing costs. The increase points to continuing difficulties for investors who bought during the earlier period of low interest rates. It also comes amid a broader recovery in investment volume, making the growth in distressed disposals only one part of the investment picture.

MSCI data show that distressed sales volume rose 26.4% in the first nine months of 2026 compared with the corresponding period last year. Nondistressed sales volume increased 50.3%, outpacing the growth in troubled-property sales and helping lift total investment above last year’s volume. The distinction matters when assessing the market: rising distressed sales volume indicates increased investment activity involving properties under pressure, but its slower growth relative to other deals does not support treating the overall increase in activity as primarily a distress-driven development.

Multifamily property stood apart from that broader pattern. Distressed apartment sales volume increased 62.8% during the period, and apartments were the only property category in which distressed transaction volume grew faster than nondistressed volume. That makes multifamily a notable area of strain in the sales figures. Across commercial property as a whole, transactions outside distress led the recovery in volume; within apartments, the stronger growth came from the troubled side of the market, highlighting a different balance between renewed investment activity and pressure on existing owners.

Read more: Wells Fargo and Bank of America increase commercial-property write-offs

The financing backdrop remained difficult as of October 19, 2026. Interest rates had stayed elevated for roughly three years, while continued high inflation left limited prospects for near-term relief ahead of the Federal Open Market Committee meeting expected the following week. For owners who purchased when borrowing costs were low, the persistence of higher rates contributes to the pressure now appearing in sales. Separately, Newmark has identified $179B in low-rate real estate loans facing refinancing risk, underscoring the financing challenge alongside the increase in distressed transactions.

Jim Costello, MSCI’s head of real estate economics, pointed to aggressive apartment purchases in 2022 as an example of the problem. He questioned the underlying value of buying a Class-B apartment building in the Southeast at a 3% capitalisation rate. His assessment places scrutiny on the terms at which investors entered the market, rather than on financing conditions alone. In that view, some owners’ difficulties reflect the prices they paid as well as the conditions now confronting their properties.

Costello also cautioned against explaining the commercial-property market through a single financial disruption. Different property categories are responding to their own demand conditions, he said, while financing has been affected by a succession of shocks. That distinction helps frame the divergence between apartments and the wider market. The figures show an overall increase in distressed sales volume, but not a uniform relationship between distressed and nondistressed volume growth across sectors. Multifamily’s exceptional position is therefore important to understanding the aggregate numbers rather than simply an extension of them.

Read more: Ueda says further rise in underlying inflation above 2% is unacceptable

At the same time, the availability of private lending has limited the extent to which distress dominates transaction activity. Costello said debt funds had displaced banks and insurance companies as the leading sources of commercial-property debt. Their willingness to work with borrowers has helped prevent distressed deals from representing a larger portion of sales volume in recent quarters. This offers a counterweight to the pressure from elevated rates: difficult financing conditions have not meant an absence of lenders prepared to engage with property owners.

That support, however, does not necessarily imply confidence that every borrower will repay. Costello said debt funds would lend only where they saw an opportunity to profit, and that the return could ultimately come from taking control of a property rather than receiving repayment. His comments distinguish the availability of financing from a resolution of the underlying distress. A lender’s willingness to participate can keep options open for an owner while also leaving a potential transfer of the asset as the eventual outcome.

Uncertainty over interest rates adds another consideration. Although the immediate inflation backdrop offered little encouragement for lower borrowing costs, Costello said the range of possible outcomes still included lower rates, influencing how market participants behave. Those possibilities sit alongside the current evidence of increased distressed sales volume. They also help explain why the market cannot be characterised solely by either owners under pressure or renewed transaction growth: financing alternatives and expectations remain part of the decisions surrounding individual properties.

The forthcoming Federal Open Market Committee meeting offered a further reference point for that financing outlook. For commercial-property investors, the figures leave two developments to watch together: whether apartment distressed sales volume continues to grow faster than nondistressed volume, and whether the broader transaction recovery maintains its stronger pace. Debt funds remain an important source of flexibility, but Costello’s assessment suggests that access to capital and the ability of existing owners to retain their properties are separate questions.