Commercial real estate (CRE) transactions slowed significantly in March, falling to their lowest level in nearly 12 months, though some market indicators hint at early stabilization.

By the Numbers:

According to SitusAMC, overall deal volume dropped 3.9% in March 2025, marking the weakest month in almost a year. Most property sectors saw declines, with retail transactions plunging 40%, followed by office at -11.4% and apartments at -9.6%. Despite the drop, the apartment sector remained the most active, generating $9.2 billion in sales. Industrial properties defied the broader trend, seeing deal volume increase by 25.7%.

Investors on Hold:

Persistent economic and policy uncertainty kept many investors on the sidelines in the first quarter. The number of market participants recommending a “hold” position rose to 70%—a 14-point increase—while only 23% advocated for buying. Selling sentiment remained minimal at just 7%. Notably, multifamily was the lone sector with more investors suggesting “buy” than “hold,” as steady cash flow continued to draw demand.

Early Signs of Stabilization:

Even as transaction activity cooled, overall CRE returns climbed 40 basis points in the first quarter, reaching their highest point in nearly three years. Annualized returns now stand at 2.7%, led by retail at 1.8%, with both apartments and industrial posting gains of 1.3%. Office returns finally turned positive for the quarter, though year-over-year figures remain negative. Meanwhile, construction starts across all property types fell to multi-year lows, which could set the stage for future rent growth.

Renewed Appeal:

Volatility in equity markets, fueled in part by tariff-driven disruptions, helped restore some of CRE’s safe-haven appeal. As equities lost favor after early April, investor interest in commercial real estate, alongside cash and bonds, began to rebound after a weak end to 2024.

Positive Developments:

Despite lingering market headwinds and inflationary pressures, CRE loan originations surged 42% year-over-year in Q1, led by a massive 205% jump in office lending. Property values, which have now climbed for five consecutive quarters, and narrowing yield spreads suggest a potential pricing floor could be forming.

➝ The Bottom Line:

While uncertainty in the political and economic landscape continues to weigh on investor sentiment, signs are emerging that the commercial real estate market may be past its lowest point. Fresh capital is positioning for a possible recovery as market fundamentals gradually improve.