• Q3 2025 sales volume surged +43% YoY, signaling fresh liquidity.
• Industrial and multifamily cap rates compressed as vacancies peaked, rents rebounded.
• Office and retail yields leveled off; upward pressure easing.
• 10-year Treasury holds at 4.1%; credit spreads narrowed, lowering debt costs.
• Fed rate cuts and improved liquidity support cautious optimism for 2026.

U.S. commercial real estate capital markets are showing robust signs of recovery, with Q3 2025 transaction volumes up 43% year-over-year. This resurgence reflects renewed investor confidence fueled by improving fundamentals, narrowing credit spreads, and a more accessible debt environment. As liquidity returns, market participants are watching closely for confirmation that cap rates have peaked, especially in industrial and multifamily, where fundamentals have already triggered yield compression. The long-awaited market thaw is underway—but discipline remains critical as underwriting standards adjust to a shifting rate regime.

Transaction activity accelerated sharply, with Q3 2025 sales volumes rising +43% YoY across all major property types (CoStar CCRSI Oct 2025). This influx of fresh capital is broad-based, with institutional and cross-border buyers re-entering the market. The result: improved price discovery and firmer bid-ask spreads. On balance, liquidity is returning to levels not seen since early 2022. “There’s real capital chasing deals again, especially in logistics and apartments,” noted one portfolio manager. In this climate, sellers are reevaluating hold strategies as buyer competition intensifies.

Industrial and multifamily sectors are leading the cap rate reversal. After peaking in late 2023, industrial yields have compressed by 35–50 bps, while multifamily cap rates are down 25–40 bps since their highs (per CoStar Group, Nov 2025). Vacancy rates in both sectors stabilized, and rent growth turned positive, supporting firmer valuations. Meanwhile, transaction pipelines for well-leased assets are swelling. If this trend continues and financing remains accessible, further modest compression could occur in 2026 for high-quality assets.

By contrast, office and retail cap rates have stabilized after a prolonged period of expansion. Office yields remain elevated—often 150 bps above pre-pandemic—but have stopped rising as subleasing slows and net absorption flattens. Retail cap rates, while also steady, are benefiting from resilient consumer spending and limited new supply. This plateauing signals that upward pressure is easing, but only select assets—prime locations, stabilized tenancy—will see any relief. Aggressive underwriting remains unwarranted in these segments.

Credit conditions underpin the recovery. The 10-year U.S. Treasury yield hovers near 4.1%, well below its 2024 highs, following two Fed rate cuts (Reuters, Nov 2025). Investment-grade credit spreads have tightened by 40–60 bps YoY, directly lowering all-in debt costs for CRE borrowers (Credaily Newsletter, Nov 2025). This environment is bolstering lender appetite, with banks and life companies reengaging on core asset financings. Should rate cuts continue and spreads hold, the cost of capital may ease further, enabling more aggressive deal structures—if fundamentals allow.

Despite renewed optimism, underwriting remains cautious. Most lenders and investors are using conservative exit cap rates, justifying a 25–50 bps compression only for best-in-class assets. Sponsors are advised to lock in financing while spreads are tight, but to pencil deals at today’s yields in case compression stalls. On balance, the discipline of the past two years persists; market players are stress-testing new loans and acquisitions for downside protection, especially in office and value-add retail.

Looking ahead to early 2026, several factors will shape the trajectory. The Federal Reserve’s December meeting is pivotal; any surprise on rates could alter financing costs and cap rate assumptions. Q4 transaction data will serve as a referendum on the market’s rebound, while credit market stability remains a key watchpoint. Should cross-border and institutional capital flows strengthen, buyer competition may accelerate cap rate compression for best-in-class industrial and multifamily. However, if macroeconomic volatility returns, or if credit spreads widen, the recovery could stall. Operators and lenders must stay nimble, calibrating strategies to both upside and downside scenarios.

Liquidity is opportunity—but only for those who maintain underwriting discipline.