CONTRIBUTORS
Mike Comparato
Head of Commercial Real Estate
Senior Managing Director
Benefit Street Partners
As we reach Fall of 2025, the U.S. commercial real estate (CRE) market continues to navigate through a complex landscape shaped by interest rates, economic indicators, and shifting user demands. This environment presents both challenges and opportunities for lenders, investors and developers.
Interest Rate Direction
Recent economic data, including the Producer Price Index (PPI), Consumer Price Index (CPI), suggest that inflation is moderating. Labor markets are softening meaningfully, with the July and August non-farm payrolls coming in substantially below expectations; equally, if not more important, the reports came with significant downward revisions to the prior monthโs figures. The result of the employments reports was a strong bid in the 10-year UST, driving rates lower and even flashing a 3 handle for the first time in recent memory. However, that was followed by a shockingly strong revision to Q2 GDP, setting final growth at 3.8%, resulting in 10-year Treasury yields coming off their recent lows.
The Federal Reserve cut their Federal Funds target by 25 basis points at the September meeting. The market is pricing in additional cuts in the coming months, and while the magnitude is debatable, the direction is not โ Fed Funds are going lower.
Macro Trends Across CRE Asset Classes
- Multifamily: Absorption remains very strong. New supply is declining quarter-over-quarter. Single family home affordability remains at all time lows, forcing more renters into the market. Concessions will likely continue to burn off and select markets may return to some rent growth.
- Industrial and Logistics: Remains strong due to e-commerce and logistics demand. Oversupply hurt rents in some markets, but overall, a very healthy sector.
- Office: Off the sentiment bottom, but the sector is still in very, very poor shape. Values are down 50-80% from peak, and the ultimate bottoming of the sector may take another two to four years.
- Retail: Shows resilience, particularly in grocery-anchored and necessity-based formats, with low vacancy rates and stable rent growth. Open air retail in middle and upper middle-income suburbs should continue to thrive.
The U.S. CRE market currently presents both challenges and opportunities. With the exception of the office sector, we believe the worst of the correction is largely behind us. That said, we do not see a โVโ shaped recovery in valuations. CRE credit markets are incredibly liquid at the moment while equity continues to hunt for opportunistic returns, which have proven difficult to find, and nearly impossible in scale.
By staying informed about interest rate movements and market trends, investors and financial advisors can navigate the complexities of the CRE market and capitalize on emerging opportunities.
WHAT ARE THE RISKS?
All investments involve risks, including possible loss of principal.
The risks associated with a real estate strategy include, but are not limited to various risks inherent in the ownership of real estate property, such as fluctuations in lease occupancy rates and operating expenses, variations in rental schedules, which in turn may be adversely affected by general and local economic conditions, the supply and demand for real estate properties, zoning laws, rent control laws, real property taxes, the availability and costs of financing, environmental laws, and uninsured losses (generally from catastrophic events such as earthquakes, floods and wars).
WF: 6768111