When future economists look back on 2025, perhaps they’ll refer to this period as, “The Great Hesitation.” Consumer and business confidence is down and the whole world seems to be waiting for the proverbial other shoe to drop. Partner touches approximately one in every five U.S. real estate transactions with one of our due diligence services; our pipeline is a microcosm of the larger CRE industry. Right now, we’re seeing an unprecedented amount of delay: deals being pushed back, quotes for services lingering while our customers decide whether to proceed with an acquisition or a financing transaction. Some investors are hoping rates will come down. Some developers are looking to secure a budget free of tariff escalation clauses. Corporations and tenants are looking to postpone the addition of long-term liabilities until there is more market certainty. In all instances the underlying demand is there; the common denominator is fear that the market will change.
When FDR said, “The only thing we have to fear is fear itself,” he was speaking to a nation already in the throes of The Great Depression. But when fear of a market downturn causes investors to postpone investment decisions and consumers to stop spending, it can become a self-fulfilling prophesy. We in the commercial real estate industry have been dealing with heightened uncertainty and volatility since COVID. We have the experience and the tools to avoid the fear-induced paralysis that threatens the economy and our own success.
A Market in Pause
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Along with much of the industry, we entered 2025 with cautious optimism and anticipated modest growth. Indeed, CRE transaction volumes in Q1 were up from last year. The market hesitation we are witnessing is more of a second quarter phenomenon. As Baker-Tilly noted in their Q1 Market Report, “Concerns surrounding the economic impact of recent tariffs are resulting in a change in sentiment for investors, ushering in a renewed period of unpredictability.” Many investors may be waiting for the trade policy to crystalize and its impacts to be revealed. In the meantime, we see less acquisition-driven work in our pipeline and a greater percentage of our work around refinance events, many of which are in response to maturing loans.
In Partner’s construction services business, we refer to the AIA/Deltek Architecture Billing Index, which tracks the billing of architecture firms. This is a very forward-looking index to predict nonresidential construction. If an architect is designing a project in Q1, the project may be permitted in Q2, and the construction financing may close in in Q3. The AIA index has been predicting contraction for the past six months, with multifamily/commercial/industrial being extra low. Government work is only down a little.
Speculation and sentiment, while undoubtedly a factor in investment decisions, can shift rapidly. Wise investors will consider them in the context of current data and developments. In the case of the tariffs, global response and trade negotiations resulted in a rollback of about half of those originally announced. Comerica’s Economic Outlook released on May 20 stated, “April’s tariff increases were partially reversed by mid-May, leaving the U.S. average tariff rate about 15 percentage points higher than on January 19th. Higher tariffs are set to weigh on growth and raise inflation, but are less likely to trigger a recession than feared last month.” In a recent informal poll, Partner’s developer clients indicated that they are anticipating a fairly modest impact by tariffs on their construction budgets.
Tariffs may change by the time you read this. The more fundamental economic is interest rates—and rate uncertainty.
Navigating Forward
Geopolitical concerns aside, there are plenty of drivers to keep CRE moving over the next year. $957 billion in commercial mortgages will come due in 2025. Due the size of the maturity wall, even a fraction of the paper will drive a decent year for the financiers and vendors who support these transactions. Also, some lenders will force borrowers to sell, triggering equity transactions. Short term bridge financing will still be a way to kick the can down the road.
There are positive signs too. Some segments of the economy are growing. AI/Data Center centric investments are obviously in a nice economic space. The federal government announced plans to reduce capital requirements for banks in 2025, which will likely cause banks to increase their CRE appetites. And most fundamentally, hesitating does not mean cancelling. As tariffs, interest rates, and the economy become more certain, decisions will hit a tipping point, and we will all be busy once again.
These positive indicators are tempered by the prevailing caution in the market. As always, heightened uncertainty requires increased due diligence. As we navigate this period of volatility, it’s imperative for all stakeholders—investors, lenders, service providers—to remain agile and responsive to emerging trends.
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Joe Derhake, PE, CEO, Partner Engineering, Science
Joe Derhake, PE, serves as CEO of Partner Engineering and Science, a global environmental, engineering, and energy consulting firm. A registered Professional Engineer for over 25 years, Mr. Derhake has touched thousands of commercial real estate projects, from development and transactional due diligence to site remediation, asset optimization, ESG initiatives and more. His clientele includes many of the world’s largest lenders, real estate investors, and corporations. Mr. Derhake is a registered civil engineer in multiple states. He holds a bachelors degree in civil engineering from Michigan State University and Masters in Business Administration from University of Southern California.
