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U.S. commercial real estate capital markets are stabilizing in late 2025 as borrowing costs ease and investor confidence returns. Multifamily and industrial are driving the rebound as pricing resets narrow bid-ask spreads. Credit conditions, however, remain split: lenders are expanding credit for apartments and logistics while continuing extend-and-pretend tactics for distressed offices and hotels.
🏘️ Multifamily Sector
Lending & Credit:
Debt availability continues to improve. Fannie/Freddie loan volume reached $44.3B in Q3 (+57% YoY) with modestly higher LTVs (~63.8%) and tighter spreads (~141 bps). Many fixed 7–10 year loans now price near 5.6%. Underwriting remains disciplined around 1.25× DSCR but lenders are actively financing stabilized assets.
Distress:
Rent growth has cooled, sparking some relief requests, but distress remains limited. About 55 loans ($1.4B) were modified in Q3—much lower than office/hotel volumes. Delinquencies remain low; construction loans in oversupplied Sunbelt markets show the most stress.
Equity Demand:
Apartments remain the top target for private and institutional capital, accounting for 30% of CRE deal count and 34% of dollar volume. Large funds (e.g., Brookfield’s $16B vehicle) are acquiring portfolios at 20–40% below peak pricing.
Pricing & Cap Rates:
Cap rates have compressed slightly from 2024 highs. Prime markets average ~4.94%, with expectations of further modest compression. Median pricing climbed to $144/SF (+17.3% YoY), signaling a narrower bid/ask spread.
Transactions:
Q3 volume surged to $45B (+51% YoY), the highest since before rate hikes. Liquidity is strongest for new, well-occupied assets; value-add and oversupplied markets still require seller flexibility.
🏘️Multifamily looks like a measured recovery, not a bubble rerun. Liquidity is back, cap rates are compressing, and pricing is firming, but rent growth has cooled and some markets (especially overbuilt Sunbelt lease-ups) will stay fragile. Near term, expect core, stabilized assets in strong metros to trade well and reprice higher, while weaker value-add or oversupplied deals remain bifurcated and lender-dependent. The main risk is investors underwriting yesterday’s rent growth into a market that’s now more bond-like: stable, financeable, but not explosive.
🏢Office Sector
Lending & Workouts:
Office remains the most constrained sector. LTVs sit near 50%, spreads exceed 300–400 bps, and many owners cannot refinance at 6–7% rates. Lenders prefer extensions: 67% of Q3’s $11.2B CRE modifications were maturity pushes, including $1.4B in office loans.
Distress Indicators:
Office delinquency reached 11.7%—the highest on record. Vacancy remains above 20% in major CBDs. Banks are shrinking office exposure and raising loss reserves ahead of 2026 maturities.
Equity Positioning:
Most equity remains sidelined except for opportunistic capital pursuing 30–50% of replacement cost buys. REITs trade at deep NAV discounts and are limited acquirers; private capital is targeting distress, trophy assets, or conversion plays.
Cap Rates & Pricing:
Cap rates are at cycle highs—often 7–9%+—but appear to be leveling for prime assets. Bargain pricing persists for older or high-vacancy buildings. Only slight compression (~7 bps) is forecast through 2025.
Transactions:
Q3 volume improved to $19B (+28% YoY) but remains far below historical norms. Most trades involve either high-quality assets with stable rent rolls or distressed/forced situations. Broad liquidity remains limited.
🏢Office is nowhere near resolution; it’s in a prolonged workout phase. High delinquency, elevated vacancy, and “extend-and-pretend” behavior tell you lenders are buying time, not seeing a real turnaround. Near term, expect more restructurings, very selective new lending, and only sporadic trades in trophy or special-use assets while the bulk of B/C stock effectively sits in price discovery limbo. For underwriting, office is a distress or conversion trade only—not a core allocation—until fundamentals and tenant demand find a new equilibrium.
🏭Industrial Sector
Lending & Credit:
Industrial remains the top performer for lenders. Stabilized assets achieve 60–65% LTV, spreads around 150–200 bps, and sub-6% rates. Distress is minimal—only ~$55.8M of loans modified in Q3.
Fundamentals:
Vacancy peaked around 7.6% and absorption remains strong (38M SF in Q3). Development has reaccelerated (246.8M SF under construction), reflecting continued tenant demand.
Equity Demand:
Equity capital is abundant, led by Prologis, Blackstone, and institutional buyers. Modern logistics assets attract multiple bids, while older product sees thinner demand.
Cap Rates & Pricing:
Cap rates are compressing again, with prime logistics trading around 5.5–6.0%, secondary in the 6–7% range. Strengthening liquidity has supported pricing, with CRE price indices showing industrial leading the rebound.
Transactions:
Q3 volume reached $29.6B (+26.5% YoY), approaching pre-rate-hike norms. Bid/ask spreads are tight; pricing for quality assets is near or above 2022 levels.
🏭Industrial remains the benchmark “safe yield + growth” sector. Volumes are rising, vacancy seems to have peaked, and cap rates are nudging down as capital crowds back in. Over the next 12–18 months, you should see continued strong liquidity and stable-to-improving pricing for modern logistics, data center–adjacent, and prime distribution assets, with more scrutiny on older or nonfunctional product. The real risk here is overpaying late in the cycle—assuming past rent growth persists while new supply ramps again in some markets.
🏨Hospitality Sector
Lending & Credit:
Hotel financing remains expensive and restrictive. Stabilized assets generally obtain 50–60% LTV at 300–500 bps spreads. Hotels drove 49% of all CRE loan modifications in Q3 ($5.5B across 53 loans), underscoring widespread maturity challenges.
Operations & Underwriting:
U.S. RevPAR is flat YTD (–0.1%), with Luxury outperforming (+2.9%) and midscale/economy lagging. Underwriting includes conservative revenue assumptions, rising labor/insurance costs, and heavy CapEx reserves due to margin pressure.
Equity Flows:
Expansionary equity is limited; most buyers require discounts. Q3 hotel volume fell to $4.3B (–18.5% YoY). Select deals—such as Blackstone’s acquisitions in Miami and Florida—show capital deploying into high-quality or discounted assets.
Cap Rates & Pricing:
Hotel cap rates remain elevated (8–10%+). Values are generally 5–15% below 2019 levels, except for top leisure assets. Pricing varies widely: resorts can trade sub-7% while struggling suburban hotels may need double-digit yields.
Transactions:
Liquidity is low; many marketed assets were withdrawn or traded at reduced prices. Deals that closed often involved REIT portfolio pruning or structured terms. Recovery depends heavily on easing debt costs in 2026.
🏨Hotels look range-bound and selective, not broadly recovering. Flat RevPAR, rising operating costs, and expensive debt mean many deals don’t pencil without a real discount, which explains falling transaction volume and heavy loan modifications. Near term, capital will likely continue to favor luxury/leisure and special situations (distress, REIT take-privates, unique locations) while mainstream urban and group-dependent hotels grind through margin pressure and refi risk. Until either rates move down or RevPAR clearly outpaces expenses, hospitality stays a stock-picker’s and workout market, not a broad capital deployment theme.
🏨Retail Sector
Lending & Credit:
Retail financing has improved but remains selective. Stabilized centers typically obtain 60–65% LTV, with lenders requiring ~1.25× DSCR and debt yields near 13%. Banks and debt funds have re-entered aggressively—together accounting for nearly 70% of Q3 non-agency lending—while life companies have pulled back. CMBS lending has revived (now 17% of Q3 volume), but terms tighten sharply for unanchored strips or obsolete formats.
Operations & Underwriting:
Fundamentals have firmed steadily. Net absorption turned positive in Q3 (+4.7M SF), and new supply is almost nonexistent. Prime open-air and grocery-anchored centers operate at 4–5% vacancy, among the lowest rates in CRE. Underwriting focuses heavily on tenant mix durability, sales productivity, and rollover risk. Rent growth is modest (~1–2% YoY), but NOI is rising due to strong tenant sales and limited competition.
Equity Flows:
Investor demand is concentrated in necessity retail, grocery-anchored centers, and high-traffic suburban strips. Retail was the only major CRE sector with positive YoY price growth in mid-2025. Private buyers dominate smaller assets, while institutions target premier open-air portfolios. Capital for malls remains thin outside of a few A-tier properties. REITs are selectively acquiring but remain focused on redevelopment and balance-sheet optimization.
Cap Rates & Pricing:
Cap rates have stabilized across most formats. Top grocery-anchored centers trade in the mid-6% range, high-street and premier lifestyle centers can compress into the 5s, while power centers and weaker strips trade 7.5–8.5%+. Mall pricing remains highly bifurcated—A-malls see stable values, while lower-tier malls price at deep discounts or land value. Overall, retail valuations are edging higher primarily through NOI growth, not cap-rate compression.
Transactions:
Liquidity has increased for high-quality retail but remains sparse for struggling assets. Most trades involve open-air centers, net-lease retail, or necessity-anchored strips. Malls see limited buyer pools. Loan modifications and extensions are common as owners manage maturity gaps, especially in secondary assets. Deal flow is expected to improve as rates stabilize and pricing expectations align.
🏨Retail enters 2026 as a two-speed market. Necessity-based and grocery-anchored centers benefit from strong tenant sales, tight supply, and competitive financing, driving steady investor demand. In contrast, lower-tier malls and unanchored strips face continued refinancing pressure and selective capital. With constrained new construction and resilient consumer spending, retail offers one of the steadier income profiles in CRE, but underwriting remains format-specific and unforgiving toward weak tenancy or obsolete assets.
U.S. CRE CAPITAL MARKETS ENVIRONMENT (NOVEMBER 2025)
U.S. commercial real estate capital markets have clearly stabilized heading into late 2025. The Fed has shifted into early-stage easing, cutting rates twice and bringing the policy range to 3.75–4.00%, with futures pricing a drift toward 3.0–3.6% in 2026. Short rates have fallen meaningfully; long rates remain around 4–4.2%, producing a modest upward slope and reducing rate volatility — the main barrier to underwriting in 2023–24.
Liquidity has returned. Q3 2025 CRE sales hit $112B (+13% YoY), led by private buyers. Debt markets recovered faster: commercial/multifamily originations are up 36% YoY, banks increased lending 52%, debt funds 83%, and the CBRE Lending Momentum Index jumped 112% YoY, the strongest since 2018. CMBS markets are fully open again, with 2025 issuance tracking toward the highest levels since 2007; AAA spreads have tightened back to the ~90 bps range.
Underwriting is still cautious but no longer tightening. Banks report “unchanged” standards, LTVs have edged up slightly (~63.8%), and loan coupons have come down with Treasury yields. Risk pricing remains stratified: industrial and multifamily clear in the 150–170 bps spread range, while office remains above 200 bps, reflecting vacancy and refinance risk. Agencies remain the most competitive capital source.
Stress is concentrated in securitized debt. CMBS delinquency is 7.46%, with office at 11.8% and multifamily above 7%. Banks and insurers remain below 2% delinquency. With ~$957B of CRE debt maturing in 2025, most lenders are opting for extensions, modifications, or recapitalizations to avoid forced sales — keeping distress contained rather than disorderly.
The market is positioned for gradual improvement, not acceleration. Stable-to-falling financing costs, tighter credit spreads, and re-opened securitization channels should support more refinancing and transaction activity in early 2026. The main risk remains the maturity wall — especially for office — but the base case is continued liquidity, incremental loosening, and a functioning capital stack for strong assets and sponsors.
