Yet another sign of hesitation in the CRE market comes from LightBox’s May CRE Activity Index, as investors try to make sense of confusing announcements about tariffs and the many unknowns regarding the path of interest rates and the economy.
The index for May slipped 105.5 from 109 in April. That, said LightBox, is “a clear sign that early-year momentum is beginning to taper amid rising economic and geopolitical uncertainty.”
This year’s May reading was 22% higher than at the same time in 2024, suggesting that the market continues to move forward, but more cautiously.
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“The investment community isn’t retreating but it is recalibrating. Lenders are becoming more selective and underwriting timelines are stretching out as everyone reassesses risk,” LightBox stated.
Compared to April, there was a 1% increase in commercial property listings in May, and a 47% jump year-over-year.However, Phase 1 environmental site assessments -- a sign of lender and buyer due diligence – remained flat from one month to the other, though they were up 7% compared to the prior May. And in “the most notable sign of cooling deal velocity,” lender-driven appraisal volume slumped 19% in May compared to April and 12% from year-ago levels.
“Appraisal activity closely tracks capital flow, so this pullback is an early indicator of tightening lender sentiment,” stated LightBox research director Diane Crocker.
“Deals are still closing, but market participants report more drawn-out negotiations, wider bid-ask spreads, and intensified risk assessments,” noted Manus Clancy, LightBox’s head of data strategy. Investors are focusing on high-quality urban assets and distressed scenarios, but underwriting and capital deployment are becoming increasingly challenging.
Even though the risk of runaway inflation has somewhat abated, lenders and investors remain concerned about construction costs and tenant demand, as well as approaching commercial real estate (CRE) loan maturities and global economic pressures.
“The next few months will reveal whether this is a brief pause or the beginning of a more sustained slowdown,” Crocker commented.
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