Banks continued to tighten lending standards during the first quarter, but the net share tightening came down significantly from a peak of around 65%. This development is a first step on what is likely to be a long road to a healthy CRE finance environment, according to Newmark.

About $2 trillion in debt matures between now and 2027, said Newmark. Thirty-seven percent of this maturing debt was originated when the federal funds rate was below 25 basis points, compared wth its current level of 433 basis points. The firm estimates that $582 billion in debt maturing between 2025 and 2026 could be potentially troubled.

Meanwhile, investment sales increased 18% year-over-year in the first quarter, but still 18% below 2017-2019 average levels. Office sales declined 16%, while multifamily was up 42%. Deals under $100 million made up 67% of volume traded in the past four quarters and institutional investment is up 66% year-to-date compared with 2024, with a 49% increase in office acquisitions. Institutional firms remain net sellers of office, according to Newmark.

The market contains $328 billion of dry powder, down 13% since December 2022. Much of it was raised from prior vintages and is targeting residential and industrial properties.

Following the public markets, transaction cap rates have increased, but both private and public market cap rates appear unattractive relative to the cost of debt capital.

“This is not surprising in the private markets, where transaction volumes are muted and reflect selection bias and appraisal-based valuations lag market conditions,” said Newmark. “Extremely narrow cap rate spreads in the REIT markets are harder to justify and seem to require a rapid decline in debt costs, historically abnormal NOI growth or a combination of the two.”