The latest CBRE report reveals a complex landscape in the U.S. capital markets for Q3 2025. The Value-Weighted Price Index, a proxy for large institutional transactions, increased by 1.2% quarter-over-quarter (QoQ), marking its first sequential gain since 2022. In contrast, the Equal-Weighted Index, which reflects smaller, more frequent deals, saw a decline of 3.4% year-over-year (YoY). This divergence underscores ongoing challenges for smaller operators and non-core markets.

The uptick in the Value-Weighted Index indicates a selective re-engagement of institutional capital, primarily targeting core assets in major metropolitan areas. Investment sales volumes in gateway metros, such as New York, Los Angeles, and San Francisco, rose 7% QoQ. However, these markets still exhibit a -21% YoY decline nationwide, reflecting a two-speed market dynamic. Notably, volumes in non-core and secondary markets remained flat or declined, revealing persistent liquidity constraints.

The Equal-Weighted Index's decline is a clear signal of price pressure outside of trophy assets. The office sector continues to languish at multi-year lows, while industrial and multifamily sectors have stabilized in top markets. National cap rates have widened between 30 to 60 basis points (bps) YoY, though trophy asset rates have remained firm. This indicates a concentration of risk at the highest end of the market, leaving smaller properties vulnerable.

For private operators, the situation is becoming increasingly precarious. The widening bid-ask spreads and reduced liquidity outside favored sectors highlight the challenges faced by local buyers. Distressed pricing has started to emerge in the office sector, signaling a potential crisis for those unable to pivot towards the more resilient asset classes. This capital flight towards data centers and industrial signifies a critical shift in investment philosophy, where durability in fundamentals is now paramount.

The bifurcation in market performance emphasizes the need for investors and lenders to scrutinize asset scale and location closely. The divergence between the indices suggests that national averages may obscure local realities, particularly for smaller or private owners. As liquidity and price recovery appear to be concentrated in core institutional markets, smaller operators may face ongoing pressure on both pricing and liquidity, impacting loan performance and capital access throughout 2025.

As we move forward, the recovery trajectory remains contingent on asset types and geographic focus. If institutional capital continues to prioritize perceived safety in core markets, it may exacerbate the challenges faced by smaller operators in secondary markets. Stakeholders must remain vigilant, tracking these trends to better anticipate risk migration and adjust their strategies accordingly.