Commercial real estate financing showed meaningful signs of recovery in the first quarter of 2025, with both lending activity and property sales registering notable year-over-year gains.

Debt Origination Rebounds:

According to Newmark’s latest Capital Markets report, CRE debt originations surged 42% compared to the same period last year. While volumes remain below pre-pandemic benchmarks, the upswing highlights growing momentum across key sectors like office, senior housing, and hospitality. Lender participation is still subdued relative to historical averages, but a more favorable rate environment has encouraged both refinancing and new loan originations.

Cautious Lender Activity:

Bank lending volumes climbed 56% from a year ago, coming within 4% of their 2017–2019 average. Debt funds and insurance companies also increased their lending, while securitization markets showed strength even though CMBS issuance remained steady. Although banks continue to enforce tighter credit standards, the pace of tightening has eased considerably, suggesting that lending conditions are beginning to stabilize.

Investment Sales Improve:

Investment property sales rose 18% year-over-year, though still trailing pre-pandemic levels by a similar margin. Multifamily assets led the way with a 42% increase in transaction volume, while office sales fell 16%. Most deals involved properties priced under $100 million. Institutional investors are reengaging, with capital deployment up 66% year-to-date and office acquisitions increasing by 49%. Despite this, institutions remain net sellers in the office market overall.

Liquidity Still Present, But Focused:

There’s currently $328 billion in unallocated capital targeting CRE, a 13% decline since late 2022. Most of this “dry powder” is concentrated in residential and industrial sectors. Rising cap rates have tracked broader market movements, but narrow spreads are limiting deal feasibility unless supported by NOI growth or declining borrowing costs.

Potential Challenges Ahead:

An estimated $2 trillion in commercial real estate debt is scheduled to mature by 2027, with over a third of it originated during the ultra-low interest rate environment. With the federal funds rate now at 4.33%, Newmark cautions that as much as $582 billion in 2025–2026 maturities could face distress.

➝ THE TAKEAWAY

The CRE market is showing early signs of recovery, fueled by improved credit conditions and renewed institutional capital interest. However, with significant debt maturities looming, constrained liquidity, tight pricing spreads, and lingering macroeconomic risks, sustained momentum will be tested in the quarters ahead.