- Liquidity is set to return to the CRE market in 2025, focusing on resilient asset classes like multifamily, self-storage, and grocery-anchored retail.
- Regional banks remain cautious, particularly regarding office and other struggling sectors, amid fallout from prior underwriting cycles.
- A surplus of dry powder and stabilizing economic conditions are expected to drive competitive lending, though speculative sectors will need more time to recover.
Commercial real estate lending is on track for a much-anticipated rebound in 2025, with investors poised to deploy capital across high-demand asset classes.
James Millon, President of U.S. Debt and Structured Finance at CBRE, predicts that multifamily, self storage, and grocery-anchored retail will lead the recovery as lenders prioritize stable returns.
However, as GlobeSt reported, not all sectors are equally positioned to benefit, as challenges persist for speculative asset types like office and hospitality.
Leading The Way
Cap rates have improved across the board over the past year, signaling more attractive pricing for investors. This, combined with a record amount of dry powder—undeployed capital—has set the stage for a lending surge in resilient sectors.
Multifamily and grocery-anchored retail are expected to attract significant attention, supported by strong demographics and consistent demand. Millon emphasized these sectors are “top of mind for capital deployment,” offering reliable returns in a stabilizing market.
Self-storage, often considered recession-resistant, is another sector likely to see liquidity flow back in, benefiting from its low-risk profile and steady cash flow potential.
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Struggling Sectors
While the outlook for 2025 is positive, certain asset classes face a slower recovery. Office properties, burdened by high vacancy rates and evolving work-from-home trends, remain a tough sell for lenders.
Regional banks, many still grappling with the fallout from prior market cycles, are particularly wary of office investments after underwriting deals with negative leverage in recent years.
Similarly, hospitality, which relies heavily on discretionary spending, faces prolonged stabilization before it can attract significant lending activity. Both sectors will likely need stronger fundamentals and more clarity on fiscal policy to regain investor confidence.
All About Fundamentals
Stabilizing interest rates and a clearer inflation picture are bolstering confidence in the lending market. The 10-year Treasury yield, expected to remain above 4% in 2025, is providing much-needed predictability for lenders.
However, uncertainties remain. The potential impact of fiscal policy shifts under the next US administration and lingering inflation concerns continue to weigh on speculative investment decisions.
2025 Outlook
The rebound in CRE lending will follow market fundamentals, with investors favoring resilient sectors that show consistent performance. The rebound in CRE lending will follow market fundamentals, with investors favoring sectors that demonstrate resilience and consistent performance.
Multifamily, self-storage, and grocery-anchored retail are set to lead the charge, while speculative sectors like office and hospitality will require more time and stability to attract significant capital.
However, the pace of recovery will vary across asset classes, reflecting broader market trends and the challenges of navigating economic uncertainty.
