Several green shoots are emerging in the CRE capital markets, including growing transaction volume and improving debt availability, according to Cushman & Wakefield’s mid-2025 economic and CRE outlook.
An increasingly diverse group of lenders is providing more options and better terms for borrowers, and lending standards appear to be easing for CRE and construction loans, said the report. This is buoyed by improving net operating income growth across asset classes except office, and many investors are beginning to view CRE allocations as a hedge against equity market volatility, Cushman & Wakefield further stated. Valuations may turn the corner over the next year as transaction-based pricing has likely bottomed out across CRE property types.
“During periods of uncertainty, real (or hard) assets are favored and CRE stands to benefit from this dynamic in the immediate term,” wrote Cushman & Wakefield. “Net operating income growth is expected to modestly pick up in 2025 versus 2024 as fundamentals in most asset types and markets stabilize, particularly as supply pipelines diminish and expense pressures from recent years moderate.”
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As the Fed continues to signal its desire to maintain a wait-and-see approach to lowering interest rates amid uncertain tariff and economic policy, capital markets were pricing in expectations of two 25 basis point cuts to the federal funds rate by the end of 2025. This aligns with Cushman & Wakefield’s prediction of interest rate decreases in September and December. The firm said it expects the Fed to lower interest rates more routinely next year and the fed funds rate should settle into a long-term equilibrium between 275-300 bps by the first quarter of 2027.
Meanwhile, the 10-year Treasury yield is likely to fluctuate in the low-to-mid-4 % range for the remainder of 2025, said Cushman & Wakefield. The term premium has risen over the past year on higher inflation expectations, fiscal policy and the corresponding uncertainty around the outlook for monetary policy. Relatively low corporate bond spreads that have further tightened in the first half of the year suggest credit risk is higher now than it was in January, according to the report.
As sellers become more motivated and willing to meet the market, as buyers are enticed by the reset in values, cap rates may face upward pressure, Cushman & Wakefield predicted. However, the firm noted most of the reset in the transaction market has already taken place. Appraisal-based measures of value, including cap rates, are likely to continue to expand moderately as spreads continue to normalize, though Cushman & Wakefield forecasts they will remain lower than historic norms.
The report predicts total unlevered returns to trend in the low double digits in 2027 and through the end of the decade.
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Kristen Smithberg
Kristen Smithberg is a Colorado-based freelance writer who covers commercial real estate, insurance, benefits and retirement topics for BenefitsPRO and other industry publications.
