Mid-Year 2025 CRE Market Review: Recovery Gains Momentum

Mid-Year 2025 CRE Market Review: Recovery Gains Momentum

As we reach the midpoint of 2025, the commercial real estate market has decisively shifted from the cautious environment of 2024 to a period of renewed activity. Transaction volumes are up, lender appetite has broadened, and fundamentals across most sectors are improving.

Transaction Volume

First Half Highlights

Total Volume: US CRE transaction volume reached approximately $220 billion in H1 2025, up 35% year-over-year

Institutional Activity: Large-ticket transactions ($100M+) increased significantly

Cross-Border: International capital flows into US CRE rebounding

Portfolio Deals: Multi-asset transactions returning after a two-year pause

By Sector

Multifamily: $82B (37% of total) — continued dominance

Industrial: $48B (22%) — strong but moderating from peaks

Office: $31B (14%) — selective recovery in Class A

Retail: $26B (12%) — surprising resilience

Other: $33B (15%) — data centers, life sciences, self-storage

Lending Activity

Volume and Appetite

The lending market has reopened meaningfully:

Agency Lending: On pace for record year with Fannie Mae and Freddie Mac both increasing allocations

Bank Lending: Regional and national banks returning to CRE after a cautious 2024

Life Companies: Allocations increased, actively seeking quality placements

CMBS: Issuance up 60% year-over-year, with tighter spreads

Debt Funds: Continued growth in bridge and transitional lending

Pricing Trends

All-in borrowing costs have declined meaningfully:

Permanent Debt: Down 75-100 bps from mid-2024 peaks

Bridge Loans: Spreads compressing as competition increases

Construction Loans: More available but pricing remains conservative

Mezzanine: Increased supply putting downward pressure on rates

Sector Performance

Winners

Multifamily: Fundamentals strengthening with moderating new supply and persistent demand

Industrial: Net absorption positive across major markets

Data Centers: Explosive demand from AI infrastructure requirements

Life Sciences: Continued growth in key clusters

Improving

Retail: Grocery-anchored and experiential formats gaining traction

Hospitality: Business travel recovery supporting urban hotel performance

Class A Office: Trophy assets in walkable urban cores showing leasing momentum

Challenged

Class B/C Office: Vacancy elevated, limited lender appetite

Senior Housing: Operational complexity deterring some capital sources

Suburban Retail: Selective — location and tenant quality critical

Regional Highlights

Strongest Markets

Miami/South Florida: Population growth, international capital, tourism

Dallas-Fort Worth: Corporate relocations, affordability, logistics

Nashville: Diversifying economy, strong demographics

Austin: Despite tech slowdown, long-term fundamentals intact

Markets to Watch

Chicago: Value opportunity relative to coastal markets, with BSA's new office providing enhanced coverage

Phoenix: Nearshoring and semiconductor investment catalyzing growth

Charlotte: Financial services hub with strong multifamily demand

Second Half Outlook

We expect the recovery to continue through the second half with the following dynamics:

Rate Stability: The Fed is expected to maintain its current stance, providing a predictable environment

Increased Competition: More lenders entering the market will benefit borrowers

Maturity Resolution: The CRE debt maturity wall will drive refinancing activity

Selective Development: New starts increasing in undersupplied sectors and markets

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For a detailed market briefing tailored to your portfolio, contact Barrow Street Advisors.