While the commercial real estate market is set for a lending rebound in 2025, not all sectors are primed for a quick recovery. James Millon, CBRE’s President of U.S. Debt and Structured Finance, predicts that liquidity will flow back into stronger asset classes like multifamily, self-storage, and grocery-anchored retail. However, smaller asset types and those heavily exposed to regional banks will likely take longer to regain momentum.
Cap rates have improved across all asset classes over the last 12 months, signaling more attractive pricing for investors. Meanwhile, a record amount of "dry powder"—capital sitting on the sidelines—could inject fresh energy into lending activity as we head into 2025.
Millon said the surge in available capital is likely to drive competitive lending, particularly in sectors that investors are eyeing for steady returns. Stabilizing interest rates and a clearer inflation outlook are expected to further support this trend. However, the market is not without its challenges.
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Millon pointed out that some banks, especially regional lenders, are still working through the fallout from previous market cycles. These banks are hesitant to invest in struggling asset classes like office space, as they continue to deal with the consequences of underwriting negative leverage over the past two years.
As the year progresses, Millon believes lending activity will continue to follow market fundamentals, with multifamily and grocery-anchored retail leading the charge. These sectors will benefit from consistent demand and strong demographics, keeping them top of mind for capital deployment.
On the flip side, speculative sectors like office and hospitality will need more time to stabilize before seeing a significant influx of investment. While uncertainty around fiscal policy and the next administration lingers, Millon noted that the 10-year Treasury yield is expected to remain above 4%, providing some clarity for lenders.
With inflation and interest rates continuing to challenge investors in the near term, Millon said the stage is set for a more stable lending environment. Capital is flowing into favored asset classes, creating a promising outlook for 2025. Still, challenges remain as the market grapples with ongoing uncertainties.
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