Last week, the Federal Reserve again kept interest rates elevated despite signs that the U.S. economy is cooling and calls from President Donald Trump for Federal Reserve Chair Jerome Powell to resign.
But the commercial real estate market, which has been in a slump for nearly three years, has stopped sweating the Fed and started to make big deals anyway.
Bisnow/created with assistance from Microsoft Copilot
Investors are returning to the sales market despite Fed inaction and economic uncertainty.
A string of data points shows commercial real estate investors are sweeping away the dust of uncertainty that has plagued the industry since Trump took office and kicked off his tariff-fueled foreign policy.
Buyers and sellers are finally getting used to a new normal as investors feel more sure about what the future of the economy and commercial real estate holds, experts tell Bisnow.
“Caution is still there,” BEB Capital Chief Investment Officer Keyvan Ghaytanchi told Bisnow. “But there is a sense that the market has turned a corner. It feels like we had a soft landing on the market, and therefore investors seem to indicate the risk of not doing the deal is more than [the risk of] doing the deal itself.”
Investors have certainly come back into the market in the first half of 2025, spending 25% more on U.S. commercial real estate compared to the same period in 2024, according to Avison Young. Even amid the height of tariff uncertainty, second-quarter U.S. deal volume climbed nearly 18% year-over-year — a sharper pickup than JPMorgan Chase analysts had projected.
The major brokerage firms experienced the benefit of money finally stepping off the sidelines.
CBRE, Colliers and Newmark all raised their guidance for earnings for the rest of the year, signaling to investors that the market is hotter than they expected. CBRE reported earnings growth of nearly 50%.
“Clients would like interest rate cuts. I don’t think they’re waiting for them,” CBRE CEO Bob Sulentic said during a July 29 earnings call. “What we’re seeing is lots of financing activity and significantly escalated sales activity. We expect that to continue for the rest of the year.”
The U.S. economy grew in the second quarter by 3%, better than experts predicted, according to Reuters. And despite geopolitical tensions, economic worries and a lackluster jobs report that could lead to employment anxiety, consumer spending still rose by 1.4% in the second quarter.
Attitude Adjustments
CRE players are seeing green shoots emerge in the industry, and that is prompting a new wave of optimism.
Nearly half of those surveyed for the CRE Finance Council’s Board of Governors Sentiment Index said they have a favorable market view, more than doubling that sentiment in the first quarter. CREFC said the sentiment shift is a sign that the economy has stabilized, that capital markets are improving and that there is growing demand across the real estate sector.
The survey found that 73% of respondents expect economic stability or improvement this year, a dramatic reversal from the 80% in the Q1 survey who thought the economy would worsen. Only 19% felt CRE fundamentals would worsen, down from 50% in the first quarter. And 65% expect investor demand to rebound, with just 3% seeing the opposite happening, according to CREFC.
Tariffs ultimately haven’t been as steep as Trump initially proposed on “Liberation Day” April 2, when he sought an average of 20% or more on foreign imports. The Budget Lab at Yale estimated this month that the average effective tariff rate will be around 18.3%.
But the trade war is still deeply in flux. The European Union announced Monday that it would suspend its planned countertariffs against the U.S. for six months as it engages in trade talks with the administration.
The back-and-forth on tariff policies is leading many to believe that Trump’s bark is much worse than his bite, and that is cementing more certainty into economic forecasts, said Carlos Fausto Miranda, owner of Miami-based real estate firm Fausto Commercial.
“The volatility of policy seems to be somewhat constrained today. A lot of that volatility was really bluster and positioning for negotiations,” Miranda said. “Markets are afraid of bad news. But they’re more afraid of uncertainty. We can adapt to bad news. But it’s very hard to adapt to uncertainty.”
Bisnow/Miriam Hall
Avison Young Head of U.S. Investment Sales James Nelson
While private capital remains the predominant source of buyers in CRE, Avison Young Head of U.S. Investment Sales James Nelson said institutional capital and bank lending are both experiencing a resurgence, which is helping to grease the transaction wheels.
BlackRock recently announced that it would increase its investment in net-leased retail assets. In July, Starwood Property Trust agreed to acquire net lease operator Fundamental Income for $2.2B.
More big deals are already percolating. Atlanta-based multifamily developer Cortland struck a $1.6B deal on Monday to buy a 19-property portfolio from Elme Communities, a liquidating Maryland-based REIT. Equity Residential put eight apartment complexes in Metro Atlanta encompassing more than 2,000 units under contract for $535M in June.
“When you have big institutions like that getting back into the game, that is really going to move the needle,” Nelson said.
Avison Young Senior Director Erik Edeen said the net effect will be more capital in the market chasing real estate deals in the second half of 2025.
“That additional capital is only going to increase the velocity of transactions, and it’s going to push prices up because there’s going to be a lot more competition in the space,” Edeen said.
Ignoring The Fed
While there hasn’t been a rate cut so far in 2025 — much to the president’s chagrin — Friday’s jobs report provided fuel for those who are calling for Powell to lower interest rates.
Not only did job growth slow in July to 73,000 jobs, far from the 104,000 jobs that were expected, but the Bureau of Labor Statistics revised away 258,000 previously reported job gains in May and June. The unemployment rate ticked up slightly to 4.2%.
Trump fired BLS Commissioner Erika McEntarfer hours after the report was released, claiming that the numbers from the bureau were “rigged.”
Federal Reserve Chair Jerome Powell delivers remarks to the Economic Club of Chicago in April.
The report came two days after Powell, who has faced repeated calls from Trump to resign for not cutting interest rates, and the rest of the Fed’s board of governors held rates steady last month with inflation above its 2% target rate. But the decision was far from unanimous: Commissioners Michelle Bowman and Christopher Waller both voted to lower rates, the first time since 1993 that two Fed governors dissented from a rate decision.
Following the jobs report, CME Group’s FedWatch survey now says there is an 80% chance that the Fed cuts interest rates by 25 basis points in September. Regardless of whether a cut comes then or in December, Miranda said that investors realize rates aren’t likely to go upward anytime soon, and that allows them to act.
Ghaytanchi said interest rates have become immaterial to CRE investment sales because the spread between what buyers are willing to pay and what sellers are willing to accept has narrowed in recent months.
“There’s still a lot of pent-up demand from both sides, sellers and buyers. Transactions that didn’t happen six to 12 months ago, people were worried about tariffs and interest rates and values falling off a cliff,” Ghaytanchi said. “We didn’t see a crash. The mindset has shifted to, ‘If the numbers work, let’s get it done.’”
