According to BlackRock, commercial real estate transaction activity is showing signs of a rebound. Yet with $625 billion in loan maturities ahead and distress levels rising, the road to stability remains uncertain.

Momentum Continues — For Now:

CRE deal volume rose 14% year-over-year in Q1 2025, marking the fourth consecutive quarter of growth. April maintained that momentum with $26 billion in transactions, reflecting resilience despite a challenging economic backdrop. Still, activity remains below pre-pandemic norms, and pricing has yet to fully stabilize. More consistent deal flow will be needed before a full recovery can be confirmed.

Rates Are Reshaping the Market:

A broader market acceptance of persistently higher interest rates has helped revive deal flow, with investors prioritizing cash flow and income over appreciation. Yet nominal rates above 5% continue to weigh heavily on loan origination activity. Even more impactful are inflation-adjusted, or real, interest rates, which are putting additional pressure on property valuations.

Distress Levels Rising Again:

The volume of distressed CRE assets climbed to $116 billion in Q1 2025 — a 31% increase from a year earlier — driven primarily by challenges in the office sector. Net distress, which had been stabilizing, has reversed. Loan modifications, particularly maturity extensions, remain the go-to strategy for navigating troubled assets, accounting for 62% of CMBS workouts last quarter. Notably, office properties made up 68% of those adjustments.

A Maturity Wall Ahead:

Roughly $625 billion in CRE debt is scheduled to mature in 2025, on top of the $520 billion that had its terms extended before this year. Banks, which hold nearly half of that exposure, are generally willing to negotiate extensions to avoid distressed sales. However, lender decisions are increasingly swayed by shifting views on interest rates and the broader economic outlook.

➝ The Bottom Line:

While CRE transaction activity is gaining ground, the recovery remains uneven. Beneath rising deal volumes lie sector-specific challenges, a growing wave of distress, and a sizable debt maturity wall. The trajectory from here will largely depend on interest rate stability and improving property fundamentals.