The real estate market in 2026 looks very different from just five years ago. The interest rate increases that started in 2022, peaked in 2023 and have yet to come back down to pre-2022 rates reshaped how investors approach selling property. For real estate investors these shifts have fundamentally changed how transactions are executed, in turn impacting the 1031 Exchange process for those looking to defer tax on the sale of their investment or business use property.
These shifts mirror broader commercial real estate trends, where higher financing costs and slower transaction velocity have reshaped investor decision-making across asset classes.
Unlike traditional real estate sellers, 1031 Exchangers must balance strict timelines, tax deferral and reinvestment requirements. As a result, the most successful investors are adapting their strategies in meaningful ways.
The 1031 Exchange itself has not changed — but investor behavior around it has. Here’s what 1031 sellers are doing differently in 2026 to ensure the maximum benefit from their 1031 Exchange.
Strategy Starts Before the Listing Goes Live
In prior years, many investors waited until their property sold to begin thinking about replacement options. In today’s market, that approach creates unnecessary risk.
Because many commercial and investment properties now take longer to transact than during the ultra-fast markets of 2021–2022, investors are:
- Identifying potential Replacement Properties early
- Engaging advisors before listing
- Mapping out multiple reinvestment scenarios
Diversification Is Replacing Single-Property Identification
Relying on a single Replacement Property is increasingly risky.
Based on aggregated data from over 30 national Qualified Intermediaries utilizing Exchange Manager Pro SM to power their QI operations, Exchangers are identifying more options, rising from an average of 1.49 properties in Q1 2025 to 2.16 in Q1 2026, a 45% rise. This gives investors flexibility to compare deals, diversify, and avoid delays if a transaction falls through.
They are also broadening what types of properties they are interested in as Replacement Property:
- Commercial property selections increased 9%
- Retail property selections increased 14% largely due to retail vacancy rates remaining near historic lows and limited new construction
This reflects a shift toward diversification and a focus on cash flow and stability.
Passive Options Gain Momentum in an Uncertain Market
In addition, more investors are considering passive options like Delaware Statutory Trusts (DSTs), which offer a replacement solution without active management. DSTs increased their share of acquired Replacement Property by approximately 3% from Q1 2025 to Q1 2026. Since 2023, DSTs nearly doubled their share of Replacement Properties within 1031s.
Financing Challenges Are Now a Core Exchange Consideration
Higher interest rates are impacting both the sale and purchase sides of an exchange.
Seller financing continues to be an attractive option on the sale and purchase side of a transaction. With commercial borrowing rates still materially higher than pre-2022 levels, buyer financing risks include delays, renegotiations, and failed transactions. Sellers are responding by prioritizing strong buyers, requiring larger earnest money deposits, and securing backup offers.
It should be noted that tax deferral on an exchange where the Exchanger is providing seller financing is tricky. Conversation with the QI should be done early to understand consequences of seller financing.
In this market, success often comes down to preparation—lining up financing early, stress-testing assumptions, and building flexibility into both the sale and purchase sides of the exchange.
Advanced Exchange Structures Move into the Mainstream
Market conditions are also driving increased use of more complex exchange strategies.
Some of the most common strategies include:
- Reverse exchanges (buy first, sell later) – In a competitive environment where desirable assets move quickly or when attractive pricing opportunities emerge before a Relinquished Property closes, waiting to sell before buying can mean missing out. In the last year we’ve seen an increase of 26% in Parking Exchanges year-over-year.
- Improvement exchanges – This is particularly valuable when available inventory doesn’t fully meet an investor’s needs. By enhancing or repositioning an asset during the exchange period, investors can meet value requirements and tailor the property to their current needs and long-term investment goals.
In 2026, executing a successful 1031 Exchange is no longer just about selling and reinvesting, it’s about strategic planning, flexibility, and risk management.
Today’s most successful Exchangers are starting earlier, planning for multiple outcomes, staying flexible on investment type, and prioritizing certainty over perfection. In a market defined by uncertainty, those who adapt are the ones who continue to defer taxes and grow their portfolios.