CRE Sees 'Shift Toward Stability’: ValTrends 2025 Forecast

Encouraging signs in commercial real estate (CRE) deal volume, pricing, underwriting standards and buying sentiment suggest the market will see stabilization in 2025. That’s according to the “ValTrends First Look” webinar on January 28, hosted by Peter Muoio, PhD, Senior Director, SitusAMC Insights, and Jennifer Rasmussen, PhD, Vice President, SitusAMC Insights.  

“In many ways, 2024 was a shift toward stability,” Muoio said. “Interest rates, at least on the short end, started coming down, the economy continued to grow. But there are always unknowns, including the new administration and geopolitical uncertainty.”  

The ValTrends webinar leverages proprietary research and recent survey data of institutional and regional CRE executives to provide a forward-looking snapshot of capital and space markets. Here are the highlights: 

Sentiment toward buying jumped. Buy recommendations rose to 33% from near zero at the end of 2022. “The ice is breaking in terms of the potential for deal flow to get going,” Muoio said. Similarly, sell recommendations rose to 11% from around zero in the fourth quarter. Hold recommendations fell from the mid-90% range in 2023 to 56%. Still, that hold rating is higher than the 48% seen at the height of the Global Financial Crisis (GFC). 

Deal activity hit the highest level in two years. December 2024 saw $55.7 billion in deal volume, according to MSCI Real Assets, up almost 59% month over month, with all major property types seeing an increase. “This is likely due to that typical end-of-year rush to get the deals done,” Rasmussen said. “But I do think it's encouraging, particularly for office activity, which more than doubled over the month. Investors are taking advantage of some of the low pricing.” 

Retail and industrial pricing outperformed over the last year. These sectors rose 3.2% and 2.7% respectively, but office and apartments declined. Office prices have hit their lowest levels since 2016, down 24% from recent peaks. But CRE prices remained steady month over month in December, hinting at stabilization in the year ahead. Retail, for example, rose 1.1%, the seventh consecutive monthly increase. 

Underwriting has begun to loosen. Investors say discipline for both equity and debt has eased to standards not seen since 2022, but capital availability remains constrained. “Unfortunately, both equity and debt availability ticked back down in the fourth quarter, so there's still tightness in the market in terms of propelling transaction and lending activity,” Muoio said. 

Investor preference for CRE has begun to wane amid high interest rates. SitusAMC’s survey asks investors to rank their preference for stocks, bonds, CRE and cash. CRE, which saw sustained improvement in 2024 amid optimism about lower interest rates, fell in the fourth quarter. “The disappointment in where long rates ended up after the whole roller coaster of last year led to (lowered) expectations for how attractive commercial real estate was going to be,” Muoio said. 

The Southwest led population growth over the last six months, particularly Texas. Dallas/Fort Worth, Houston, Austin and San Antonio all rank in the top 10 of the 50 largest metros, along with Phoenix, according to SitusAMC’s proprietary heat map. It tracks data such as post office address changes, electricity hook-ups, bank account openings and moving company activity. The West Coast population, while still weak, has crept up. Previously robust population growth in Florida is now mixed, with strong and improving numbers in Miami and Orlando, but slowing in the other major metros. Population is also growing in New Jersey, New York City and other parts of the Northeast, possibly due to return-to-office mandates "pulling people from far-afield, pure-remote conditions back toward major population centers,” Muoio noted. 

Distressed CRE reached $107 billion in the fourth quarter. The total value of distress is highest in a decade, but about half of GFC levels. The pace of growth has been slowing over the past year. While office accounts for nearly half of the total value of distress, apartments were the primary driver of the overall increase in the latest quarter.   

“Looking forward, about 40% of the total debt maturing in 2025 is multifamily, as many of the deals made in 2022 had a three-year term,” Rasmussen said. “With persistently high interest rates, falling prices and challenging fundamentals over the past year, there is a huge potential for distress as the market works through the maturities.” Multifamily has also seen sustained upward pressure on operating expenses, including insurance, property taxes, maintenance and administrative costs.  

View the ValTrends Look Ahead webinar presentation here. For more information on SitusAMC Insight’s research, analytical tools or data products, visit our website.