US Capital Market and CRE Trends: H2 2025

This article analyzes economic, capital markets and real estate market data to provide commercial real estate (CRE) practitioners with insight into the factors shaping the availability and price of debt and equity financing for office, industrial, retail and multifamily investment and development. It draws from historical data provided by CoStar Group and publicly available sources to examine trends in transactions, development and loan originations, and identifies the largest developers and transactions by property type. Most CRE market data are current as of the second half of 2025.

KEY FINDINGS

• Lending and transaction volumes are growing across property types, and valuations have largely stabilized.
• Banks have increased lending to commercial properties while conduit lenders have stepped back. Collectively, federal agencies, government-sponsored enterprises (GSEs) and mortgage-backed securities (MBS) investors remain top buyers of loans to multifamily real estate. Life insurance companies have been among the most consistent lenders across property types.
• Private buyers dominate overall purchasing activity, with institutional investors focused on industrial and multifamily properties and REITs concentrated in retail.
• Distressed sales are down, but loan delinquencies are up. Distress is concentrated in investment-grade properties and commercial mortgage-backed securities (CMBS) loans.
• Construction activity has moderated in industrial and multifamily sectors. Office development continues to contract, with elevated demolitions offsetting new deliveries.

ECONOMIC TRENDS AND INTEREST RATES

The economy showed signs of cooling in 2025, but resilience in consumer spending and capital expenditure on data centers will likely support continued yet slower economic growth in 2026. Real gross domestic product (GDP) grew 2.1% in 2025, slowing to an annual pace of 0.7% in the fourth quarter.[1] Job growth slowed significantly in 2025. Employment then grew by 121,000 jobs in January 2026 and declined by 92,000 jobs in February, with private payrolls falling by 86,000, the largest decline since December 2020. On net, the US economy has added only 156,000 jobs since February 2025, an increase of 0.1%.[2] Nonetheless, consumers have continued to spend. Retail and food services sales from November 2025 through January 2026 were up 2.9% from the same period a year ago, though January sales were down 0.2% from the prior month.[3] Spending on data center construction and infrastructure buttressed nonfinancial corporate business capital expenditures for the year ending in the third quarter of 2025, which were up 2.8% over the same period a year earlier.[4]

The outbreak of the current military conflict with Iran raises the risk of energy price inflation, but its impact on overall inflation and the US economy will depend on the severity and duration of the conflict.

If the Federal Reserve (Fed) determines that any impact on prices will be temporary, it is unlikely to raise interest rates in response, and a short-lived conflict would have a muted effect on the economy. However, if the conflict is prolonged or escalates further, energy price inflation could spill over into the broader economy. In a worst-case scenario, higher prices and equity market volatility could lead consumers to dial back spending and push an already slowing US economy into stagflation.

The Personal Consumption Expenditures Price Index excluding food and energy, the Fed’s favorite measure of inflation, grew 3.1% from a year earlier in January, above the target of 2.0%.[5] At its March 2026 meeting, the Fed’s policymaking committee kept its target policy rate unchanged. The current effective Federal Funds Rate is 3.64% with a target range of 3.50% to 3.75%. The median projection from the March meeting called for a single cut in 2026, unchanged from the December meeting,[6] but there is considerable uncertainty about the path of future interest rates. On the upside, new Federal Reserve Board Governors appointed by President Trump could deliver looser monetary policy.

On the downside, a prolonged conflict with Iran or the rapid growth of federal debt could drive up intermediate and long-term Treasury yields. This uncertainty is contributing to higher cross-asset volatility. The equity Volatility Index (VIX) has frequently been above 20 in the past month, suggesting a high level of volatility in the stock market. The MOVE Index (Merrill Lynch Option Volatility Estimate), which tracks volatility in Treasuries, exceeded 90 on March 11, but has since fallen back to around 80, suggesting a moderate level of volatility in the fixed-income market.

CREDIT CONDITIONS

Data from the Mortgage Bankers Association (MBA) provide insight into the current state of commercial and multifamily lending. MBA data on commercial (non-multifamily) mortgage debt flows by investor/lender type from the fourth quarter of 2024 to the third quarter of 2025 show significant shifts in the major buyers of commercial mortgages. Conduit lenders were the largest net lenders to CRE in late 2024 and early 2025 but sharply decreased their holdings of commercial mortgages in the third quarter of 2025. Life insurance companies also moderated their volume of commercial mortgage lending after being particularly active in the fourth quarter of 2024. Notably, banks went from decreasing commercial mortgage holdings in the fourth quarter of 2024 to being the largest net lenders to CRE in the second and third quarters of 2025.

MBA data on debt flows reveal growth across the largest buyers of multifamily mortgages but with some significant quarterly variation in leadership by lender type. Federal agency/GSE and MBS investors were the largest net buyers of multifamily debt over the last year but were most active in the fourth quarter of 2024 and the third quarter of 2025. Life insurance companies were the next largest lender to multifamily real estate over this period, leading originations in the second quarter of 2025, followed by banks, which were top lenders to multifamily real estate in the first quarter of 2025.

Lending on office and retail properties has seen major increases. As of the third quarter, the dollar value of new loans grew by 181% year over year for office properties, by 100% for retail properties, by 66% for hotel properties, by 27% for multifamily properties and by 5% for industrial properties.[7]

In addition to growing debt availability, borrowers are benefiting from falling benchmark interest rates and narrowing yield spreads for short-term loans. These trends are described further in the NAIOP Research Foundation’s March 2026 report on commercial mortgage interest rates, which examines quoted rates for loans to multifamily, industrial, office and retail properties, and construction projects.

TRANSACTION VOLUME

Exhibit 3 charts the last 10 years of transaction data from all US markets tracked by CoStar Group. It reveals the pandemic-era boom in activity fueled by low interest rates that culminated in peak transaction volume for all four major commercial property types in the fourth quarter of 2021.

Even the office sector experienced record sales that quarter, despite headlines at the time that questioned the property type’s long-term viability. This expansion in activity was followed by a sharp decline in transactions as interest rates rose.

Multifamily transaction volume was the first to begin to recover in the second quarter of 2024, followed by office, industrial and retail in the fourth quarter of 2024. Recent multifamily, industrial and retail transaction volumes are comparable to before 2020, while office transaction volume remains lower.

Exhibit 4 shows year-over-year growth in transaction volume by major property type over the last two years (2024 and 2025). In the second half of 2024, transactions picked up significantly across all property types, particularly in the office sector, which had experienced weak volume in 2023 and the first half of 2024.

Growth in transaction volume across all property types has since moderated but continued in the second half of 2025.

REGIONAL TRENDS

An examination of trends in total transaction volume (including office, industrial, retail and multifamily properties) in the four major census regions since 2020 reveals a boom in activity that occurred in the South and West during the pandemic before cooling as interest rates and uncertainty rose in 2022 (Exhibit 5 and 6).

The last two years of data show transaction growth rates converging, especially over the last four quarters, though volume in the South and West remains substantially higher than in the Northeast or Midwest.

PRICING

Echoing rising interest rates, capitalization rates began rising in the second half of 2022 across the four major CRE property types (Exhibit 7).

Multifamily, industrial and retail cap rates have since stabilized, with office showing a slight improvement in the fourth quarter of 2025. Long leases and rent growth for retail and industrial real estate have shielded per square foot valuations even as cap rates rose (Exhibit 8).

However, the increase in cap rates combined with rising vacancy and declining effective rents to lower per square foot and per unit sale prices for office and multifamily properties until both sectors stabilized in 2025.

Over the last five years, the valuation gap between the two property types has narrowed significantly, making it easier for office conversions to pencil out.

Purchases by institutional buyers dipped in the first half of 2025 before rebounding slightly, while private sources of capital have been behind most transactions in the US over the last two years (Exhibit 9).

Looking at buyers by property type in the second half of 2025 reveals that institutional investors participated in a larger share of industrial and multifamily purchases than for other property types (Exhibit 10). Private and REIT buyers were most concentrated in retail, a sector that private equity funds avoided.

DISTRESS

The share of transactions represented by distressed sales rose in 2022 and 2023, with a particularly sharp uptick among investment-grade properties.

CoStar Group defines this as a segment of the CRE market consisting of larger-sized, higher-quality, and professionally managed assets typically targeted by institutional investors (Exhibit 11). In December 2025, distressed sales represented 5.6% of all investment-grade property sales, down from a high of 12.2% in June 2024.

By comparison, distressed sales represented only 1.3% of non-investment grade sales in December 2025 (labeled in Exhibit 11 as general commercial distress). Investment-grade property distress has been heavily concentrated in the office sector.

According to MBA, delinquency rates for mortgages backed by commercial properties were mixed but decreased overall in the third quarter of 2025 compared to the prior quarter. However, when compared to the first quarter of 2025, delinquencies were up, driven by increases in later stage delinquencies and foreclosure/real estate owned properties.

The share of loans that are delinquent has increased for some property types, including multifamily and health care, while office, retail, industrial and lodging have decreased. Among capital sources, CMBS loans have had the highest delinquencies (5.7%).

Non-current rates for other capital sources have continued to be moderate. Only 1.5% of life company loan balances were delinquent, as were only 0.6% of GSE loans.[8]

DEVELOPMENT

Development activity across the major CRE property types since 2020 has followed the general pattern of transactions over that period, with a large ramp-up in industrial and multifamily construction from 2020 to 2022, followed by a decline that has since brought activity in both property types below late 2019 levels (Exhibit 12).

Industrial construction activity shows signs of stabilizing over the last two quarters, while multifamily construction has continued to decline.

Office construction has steadily declined since 2020, while retail construction declined in the first year of the pandemic and has since remained relatively stable.

Multifamily construction activity has consistently represented a higher proportion of total inventory than the other three property types, but the current multifamily construction pipeline is the smallest it has been relative to total inventory in the last 10 years (Exhibit 13).

A CLOSER LOOK AT OFFICE DELIVERIES AND DEMOLITION

The second quarter of 2025 was the only quarter in data going back to 2008 to witness net negative deliveries of office space. This was due to a slowdown in construction and an increase in demolition (Exhibit 14). Demolitions exceeded 8 million square feet in every quarter of 2025. By contrast, demolitions reached this level only four times from 2019 through 2023.

Industrial construction activity shows signs of stabilizing over the last two quarters, while multifamily construction has continued to decline. The second quarter of 2025 was the only quarter in data going back to 2008 to witness net negative deliveries of office space.

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