The Doors probably weren’t singing about commercial real estate investing in their ominous sounding hit from the 70’s “Riders on the Storm,” but the title describes investors today who are adjusting to the new normal.
From guessing how businesses and tenants will be hurt by the highest tariffs in almost a century to analyzing a slowing jobs market, potential inflation and the changes brought about by artificial intelligence, investors have plenty of risks to quantify. Despite the haze, they are wading back into the market, and lenders are joining them. The freeze that thwarted activity in the first quarter seems to have thawed for now.
According to its midyear outlook, CBRE expects investment activity to grow 10% this year with good real estate fundamentals intact. The outlook is for cap rates to ease from their cyclical peak in the coming quarters. Or, said another way, investors are expected to come off the sidelines as pricing stabilizes.
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CBRE reports that Q2 2025 investment volume increased 13% when compared to the same quarter in 2024 and the trailing 12-month volume is up 19% from last year. The sectors that stood out the most were office and retail properties with quarterly year-over-year volume increases of 50% and 31%, respectively.
Green Street, a real estate research firm based in Newport Beach, California, publishes a commercial property pricing index (CPPI) each month and it could be indicating a bottom. The Green Street CPPI showed that while pricing decreased slightly in July from June 2025, year over year pricing is up 3.2%. The CPPI indicates a drop in values of 18% since peaking in 2022 when including all property types, but most property sectors have increased in value over the past year. The exceptions are lodging and self-storage.
Lenders are trying to do their part. According to data from the Federal Reserve, commercial banks increased their real estate loan portfolios by $57 billion in the second quarter after increasing only $50 billion in the previous 12 months.
According to Commercial Mortgage Alert, CMBS lenders (conduits) increased their production with over $59 billion in new production in the first half of 2025 compared to approximately $44 billion in the first half of 2024. The outsized production from CMBS lenders shows no sign of decreasing. In fact, pricing is getting better despite a torrent of new supply in the past two months.
Also adding to loan production in an unprecedented way are debt funds or so-called shadow banks. Recently, they have been particularly active in financing recently-completed multifamily projects that are still in lease-up, as well as construction loans and distressed assets.
Loan pricing is better than it was most of the year with banks pricing fixed-rate deals in the low 6% range. Now with the forward curve declining, banks can offer swapped rates into the 5.50% to 5.75% range. Life insurance companies are still producing at a solid clip and pricing low leverage deals in the 5.25% to 5.75% range. Fannie and Freddie can beat that pricing particularly for mission qualifying deals.
Investors seem to be comfortable that the tariff storm is passing, but still cautious they could be in the eye.
Andrew Little at Queenswood Partners can be reached at alittle@queenswoodpartners.com.
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