As we step into 2026, the economic landscape is marked by cautious optimism. Growth is expected to continue, likely at a slow pace given labor market dynamics. Inflation nearing its target of 2%, along with a tightening labor market favor lower interest rates heading into mid-2026. Given the slow growing labor force, productivity must do the heavy lifting to support continued economic growth.
The Role of Productivity in Driving Economic Recovery
Productivity will be the cornerstone of economic resilience in 2026. While AI‑driven efficiency gains offer substantial upside, the exact timing and scale of their impact remain uncertain. What is clear, however, is that these advancements will need to do the heavy lifting. They must counterbalance sluggish employment growth, elevated government debt levels, and a long‑running decline in domestic investment. Together, these factors have weighed down productivity growth for nearly two decades — making the potential boost from AI not just beneficial, but essential.
What This Means for Real Estate
For real estate, a low-growth, low-rate, disinflationary environment—especially one boosted by a productivity tailwind—may offer compelling long‑term opportunities. Following the historic surge of new deliveries in 2024 and 2025, development pipelines have contracted sharply, with new projects slowing across most sectors as we move into 2026 and 2027. This tightening supply backdrop is particularly notable in segments such as senior housing, self‑storage, and medical outpatient facilities, where construction activity remains low relative to existing inventory. For those with a long‑term horizon, this combination of muted economic growth and constrained new supply could set the stage for favorable conditions in the years ahead, especially in sectors benefiting from AI infrastructure and demographic demand.
Read full article by Phil McAlister, Head of Research
