Real estate and tax specialists from PricewaterhouseCoopers (PwC) discussed shifting market conditions, Opportunity Zone transition rules, and possible federal tax legislation during a July 29 webcast.
Real estate market shows ‘flight to quality’
PwC Real Estate Advisory Director Aaron Pinet said commercial real estate is recovering, although not through the broad-based rebound many market participants expected. Pricing has become more stable, he said, but investors still need a credible, property-level growth case before accepting real estate risk.
Capital markets are functioning better than transaction-market headlines may suggest, Pinet said. Commercial mortgage-backed securities issuance is ahead of last year’s pace, and investment-grade real estate investment trusts continue to access unsecured debt markets. Still, debt costs and interest-rate protection costs remain elevated.
“Liquidity has improved more than affordability has improved,” Pinet said.
Market conditions also vary sharply by property type, location, and asset quality. Data centers, senior housing, and selected resale assets have strong operating momentum, while office leasing has improved primarily among high-quality properties. Pinet described the office recovery as a “flight to quality” and, in some markets, a “flight to scarcity.”
Office leasing volume in the first quarter of 2026 reached about 91% of comparable 2019 levels, Pinet said. Limited construction could provide a better backdrop for existing landlords, but lower-quality buildings, weaker submarkets, and properties requiring significant capital investment may remain challenged.
Data centers face strong demand fueled by technology companies’ capital spending, although power availability, permitting, and tenant credit quality remain key underwriting considerations, Pinet said. Apartments and industrial properties, by contrast, are working through supply cycles.
Opportunity Zone transition raises planning questions
James Montague, director of PwC’s federal real estate tax practice, reviewed transition issues as the original Opportunity Zone program moves to a new permanent program in 2027.
Original deferred gains generally will be recognized on December 31, 2026, and cannot be redeferred into the new program, Montague said. Other eligible gains recognized during 2026 can qualify for the new benefits if the taxpayer’s 180-day investment period extends into 2027.
“The really important thing to make sure here is just that your cash is not moving into the Qualified Opportunity Fund until 2027,” Montague said.
Investments made during 2026 remain subject to the original program’s rules. Montague said most of those benefits have expired, apart from the 10-year exclusion.
Recent Treasury guidance also addresses investments in original Opportunity Zones that are not redesignated for the new program. Generally, property acquired in 2027 or later must be located in a newly designated zone, Montague said.
An exception can apply to a development project in an original zone if the qualified Opportunity Zone business has a working capital plan in place by the end of 2026. To qualify, the business must receive at least 10% of the assets identified in the plan and spend, or enter into contractual obligations to spend, at least 5% of those assets by year-end.
Montague said Treasury could finalize the new zone designations by December 28, 2026, after state nominations and possible extensions.
Federal tax legislation has uncertain path
Mark Prater, a managing director in PwC’s tax policy services group, said Congress could pursue tax legislation through a bipartisan bill under regular order or through the budget reconciliation process.
Prater said a bipartisan tax-administration bill (the Taxpayer Assistance and Service (TAS) Act, S. 3931) that advanced out of the Senate Finance Committee July 30 by a 26-1 vote could provide a foundation for a year-end package. Such a measure could include agreed-upon technical corrections, extensions of expiring provisions, and other noncontroversial tax items, but it would require support from congressional leaders and the administration.
Reconciliation legislation is focused primarily on defense spending, Prater said. Some lawmakers, however, have pressed for revenue offsets, which could lead tax-writing committees to consider tax provisions. A separate reconciliation measure also remains possible, although its timing and scope are uncertain.
Asked about housing-related tax incentives, including credits for commercial-to-residential conversions, Prater said lawmakers in both parties recognize that housing supply is a central policy concern. He pointed to expanded low-income housing tax credits, neighborhood development incentives, and depreciation changes as potential areas for further discussion.
“Supply is the issue,” Prater said, adding that lawmakers and staff appear open to tax policies that can increase housing production.
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