📢Good morning,
Commercial real estate financing remains largely frozen as the Fed holds rates at ~4.25–4.5%, deferring the cuts many expected in 2025. CRE transaction volumes fell ~19% year-over-year in Q1 and ticked up only slightly in Q2, leaving most deals sidelined. Rate volatility, political pressure on the Fed, and tighter credit availability have widened the bid-ask gap, forcing many investors into a “wait and see” posture
📊 Quick Dive
Q1 2025 CRE deal volume: ~$85B (–19% YoY).
10-Year Treasury range: 3.6%–4.8% in recent months, now stabilizing near 4.4%.
Loan proceeds cut: lenders capping leverage at ~55–60% LTV with DSCR at 1.40x+.
Brookfield Revives Manhattan’s 666 Fifth as Trophy Tower Hits Full Occupancy Brookfield’s $400M redevelopment of 666 Fifth Avenue (now 660 Fifth) turned a near-empty liability into a 1.25M-sf trophy tower, now 100% leased. Major tenants like Citadel, Macquarie, and Scotiabank are paying north of $100 per sf, nearly 40% above Manhattan’s average rent. The project underscores a widening “flight-to-quality” gap: while NYC offices overall remain 17–20% vacant, trophy assets are commanding premium rents and strong absorption.
Industrial Cooldown: Vacancy Hits 7.1% as New Supply Outruns Absorption The U.S. industrial market is normalizing after years of record demand. National vacancy rose to 7.1% in Q2 2025, up from a record-low 2.8% in 2022. Developers delivered 71.5M sf last quarter, far outpacing absorption of 29.6M sf. Large box distribution centers are struggling to lease, while small urban warehouses remain tight at just 4.4% vacancy. Analysts expect national vacancies to peak near 7.5–8% in 2026 before stabilizing.
The message for operators is clear: capital is bifurcating faster than ever. On one hand, trophy redevelopments like Brookfield’s 660 Fifth prove that bold repositioning with deep capital can deliver premium rents. On the other, financing constraints are halting most transactions until rates fall, forcing investors to conserve liquidity. Industrial, once untouchable, is cooling to equilibrium — proving even “safe” sectors must be underwritten carefully.
For investors, the focus should be on balance sheet discipline and capital optionality: secure extensions on near-term maturities, hold cash reserves, and prioritize prime assets where tenant demand is still sticky. For developers, creative repositioning — or adaptive reuse — is the only playbook for middling assets.
Rates: Expect Fed policy to stay restrictive until mid-2026; underwriting should assume no cuts for 12+ months.
Flight-to-Quality: More extreme makeovers of prime offices likely, while B/C assets risk distress sales or conversions.
Industrial: Vacancy may edge toward 8% in 2026, with big-box rents softening while infill urban demand holds.
Capital Markets: Dry powder remains sidelined — distressed sales in the next 2–3 quarters could reset pricing and spur deal flow.
CRE Transaction Volumes, 2024 vs 2025 (by quarter). Shows the 19% YoY drop in Q1 and modest Q2 rebound — a simple visual that underscores the financing freeze. Q1 2024 ~$105B vs Q1 2025 ~$85B; Q2 2024 ~$111B vs Q2 2025 ~$115B
