The third quarter of 2025 reveals a stark bifurcation in commercial real estate (CRE) performance. While total transaction volume plunged by 54% year-over-year, sectors such as data centers and industrial markets defied this trend, showcasing growth of 18% and 7%, respectively. This divergence underscores a critical shift in capital behavior, as demand for digital infrastructure and e-commerce logistics continues to drive investment in these sectors. Conversely, the office and retail markets face significant challenges, with office transactions down 63% YoY, reflecting persistent risk aversion.

The resilience of the data center and industrial sectors can be attributed to robust demand for digital infrastructure and logistical needs driven by e-commerce. This sustained interest has created a liquidity environment where regional and mid-market players in these sectors see price stability and more favorable transaction terms. In contrast, office and retail remain under pressure, marking a clear delineation in CRE performance. The growth in these sectors indicates a capital rotation towards areas with structural demand tailwinds.

Despite the positive outlook for data centers and industrials, institutional investors remain cautious. Moody’s Value-Weighted Index, which tracks large, institutional transactions, fell by 4.2% YoY, signaling a broader hesitance in deploying capital across the CRE spectrum. This cautious approach suggests that while select sectors thrive, overall market uncertainty is prompting a reevaluation of risk across asset types.

The current landscape points to a capital rotation rather than uniform market contraction. Institutional and private capital is increasingly favoring sectors that demonstrate structural demand. This shift underscores a two-speed market where liquidity is tightening for most asset types, but capital allocation remains active in resilient sectors. For mid-size operators, there is an opportunity to capitalize on niches that benefit from this selective liquidity.

Looking ahead, underwriting and lending teams must adapt to the evolving landscape characterized by this two-speed dynamic. It will be crucial to segment risk and opportunity by sector and to track capital rotation closely. Reliance on aggregate deal volume may obscure vital insights; thus, sector-specific benchmarks must guide market entry and exit strategies in 2025. As selective liquidity persists, operators must remain agile to leverage opportunities in favored niches while navigating the challenges present in weaker sectors.