The uncertain macroeconomic landscape and fluid economic policy developments could yield a range of potential outcomes, according to Cushman & Wakefield’s June real estate investment conditions and trends report. The firm’s revised baseline forecast anticipates short-term stagflation throughout the remainder of the year, including slower growth and higher inflation.
Underlying trends suggest growing softness in the labor market despite beating consensus expectations in May, the report said. Monthly job growth has been declining since the beginning of the year and is averaging 124,000 new jobs per month this year vs. 168,000 jobs per month last year. Job growth is concentrated in fewer industries, with education and healthcare notably ramping up hiring.
Headline measures of inflation are moving toward their target, and core measures are holding relatively stable near 2.8% year over year in May, the report said. Tariff policies could exert upward pressure on inflation during the second half as goods imported and stockpiled prior to April start to run low.
“For now, the Fed is likely to choose to manage for growth; softening labor markets should prompt the Fed to cut rates in Q4 ’25, before a more consistent cutting cycle unfolds in ’26 as tariff policies de-escalate and initial tariff-cost and price-pressures ease for businesses and consumers,” said the report. “From there, policy rates are expected to return to a neutral range of 2.75% - 3% by early ‘27.”
Credit spreads have reverted to pre-Liberation Day levels, the report said. CMBS issuance has regained traction, with nearly $50 billion in year-to-date non-agency issuance recorded, an increase of 31% compared with May 2024. Meanwhile, lenders are showing a growing appetite to deploy debt capital, giving borrowers better terms and more options. CRE fixed debt costs remain around 70 basis points tighter than they were at the height of the 2023 rate-hike cycle, said Cushman & Wakefield.
The report also noted improving indicators throughout the office sector over the past year and said investor attitudes toward the sector are reforming.
A renewed focus on U.S. fiscal policy is reinforcing a higher-for-longer interest rate outlook, the report said. For CRE, originations for shorter, three- and five-year term loans should continue at a healthy pace as borrowers continue to favor these shorter-term loans as a hedge against interest rate risk. Longer-term yields around the mid-to-low 4% range are consistent with equilibrium, but mounting concerns over longer-term fiscal sustainability and inflation have the potential to keep 10-year Treasury rates in the mid-to-high 4% range in nearly all economic scenarios apart from recession. Episodes where longer-dated yields dip into the low 4% or high 3% range represent a window of relative opportunity for borrowers seeking to secure longer-term fixed financing, said Cushman & Wakefield.
“We continue to advise our clients to maintain measured expectations for the direction of the longer end of the yield curve,” the report said. “The more quickly consensus is formed around higher-for-longer prospects across both the debt and capital markets, the more fluid liquidity conditions can become.
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