After years of tight capital and stalled dealmaking, liquidity in commercial real estate began to show real signs of life at the end of 2025. According to Madison International Realty, market conditions in the fourth quarter marked a turning point toward normalization.
The firm's Madison Real Estate Liquidity Index — which tracks how easily investors can enter and exit commercial real estate limited partnerships — posted a score of 54.5 in the fourth quarter. That was up sharply from 35.6 in the previous quarter and represented the index's seventh straight quarter of improvement. It also reached its highest level since early 2022.
The index ranges from -100 to 100, with positive numbers signaling improving liquidity. Madison distills multiple data sets across the U.S. and Europe into the aggregate score to capture shifts across lending, transactions, and capital formation.
"The US index has recovered a little faster and a little higher," Chris Muoio, head of research and strategy and managing director at Madison International, tells GlobeSt.com. The U.S. registered a 64 reading, while Europe came in around 45.
Liquidity in the market depends on the interplay of three factors — lending, transactions, and capital formation — each influencing the others but not always in sync. "One of the things we've seen over the last few years is that immediately post-rate hike, there was a bid-ask spread," Muoio says. Sellers were holding onto pre-hike pricing expectations, while buyers bid based on lower valuations.
"For a few years, there was a lot of hope … that we'd get rate cuts and everything will be fine," he explains. But ultra-low rates never returned. "It takes time for people to recalibrate to the revaluation cycle. We had the whole decade prior until 2018 when we attempted a rate hike cycle, and it didn't stick, and that may have been part of it."
According to Muoio, conditions began to shift noticeably in early 2025, starting with lending markets. "In the fourth quarter, we saw that trickle through to the equity side of the business," he adds.
"The capital formation is still sluggish and not really seeing the level of improvement we've seen in the lending and now in the equity capital markets," says Muoio. "We think the formation capital raising is so sluggish because there are many investors who need money back so they can reinvest. They're not getting the returns because there are no distributions and transactions."
"The lending markets are very healthy, and we're starting to see the return to the primary of capital markets, and capital raising and formation is still muted and not quite there yet," Muoio says. "We're hopeful that's the next sort of thing we'll see, the formation of capital as transaction volumes continue to improve."
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