CRE Investor Optimism Rises as Uncertainty Eases: ValTrends Webinar, 4Q 2025

After a volatile first half of 2025 marked by trade policy shifts and a recent data blackout from federal agencies, commercial real estate (CRE) investors are beginning to regain their footing. That’s according to the ValTrends First Look webinar held October 16, led by Peter Muoio, PhD, Senior Director, SitusAMC Insights, and Jen Rasmussen, PhD, Vice President, SitusAMC Insights. 

They examined how evolving policy and macroeconomic forces are reshaping the CRE landscape—from capital flows and sector performance to distress levels and investor sentiment. Despite ongoing uncertainty, the data points to a gradual thaw across markets and an emerging sense of recalibration. 

Economic Uncertainty Recedes from April Peak 

Earlier this year, the economy was jolted by new tariffs and a wave of policy changes under the presidential administration, triggering a surge in the U.S. Economic Uncertainty Index to its highest level on record in April.  “That spike represented an unprecedented level of uncertainty,” Muoio said. “People stepped back and paused—essentially gumming up the system.” 

Since then, the index has moved significantly back toward normal levels, though not fully normalized. As policies have taken shape, market participants have begun to adapt, helping restore activity in the broader economy and capital markets. 

Still, headline GDP data has been erratic. The first quarter showed a marginal contraction—driven largely by a surge in imports as businesses stockpiled goods ahead of tariff implementation. In contrast, second-quarter GDP rebounded as imports declined and inventories normalized.  “These gyrations make it hard to discern the true underlying strength of the economy,” Muoio said. 

Data Blackout Clouds Fed Outlook 

Complicating matters is a lack of official labor data. The Bureau of Labor Statistics has suspended reporting, forcing investors to rely on alternative indicators such as the ADP private employment report. Early readings suggest continued weakness following job losses in May, June, and August. 

“Employment has weakened significantly, and job openings are down,” Muoio said. “The Fed is flying blind—facing rising inflation and limited visibility on the labor market.” 

Inflation pressures persist, with both headline and core CPI edging higher. The combination of rising prices and incomplete data has made it difficult for the Federal Reserve to calibrate policy, heightening uncertainty across the bond market. The 10-year Treasury yield has hovered between 4.0% and 4.5% over the past two years, fluctuating despite multiple rate cuts in 2024. Renewed trade tensions with China have added to volatility. 

CRE Emerges as a Safe Haven Amid Volatility 

Against this backdrop, investor confidence in CRE has strengthened sharply. “Investors are seeking stability in a volatile world,” Rasmussen said. “CRE is viewed as a relatively safe haven.” 

Through the first three quarters of 2025, CRE has been the top-performing preferred asset class—outpacing equities, bonds, and cash. As the Fed began easing, investor sentiment initially improved, with a rise in “buy” preferences, according to SitusAMC’s proprietary investor survey. That momentum stalled amid renewed policy shocks, but the latest data points to fresh signs of thawing as participants regroup. Capital availability has also improved, with both equity and debt underwriting becoming more flexible. However, transaction volumes remain subdued.  

Sector Preferences Shift Toward Apartments and Retail 

Apartments remain the most favored asset class, with 52% of investors citing it as their preferred sector, up six percentage points from the year-ago quarter. The sector’s appeal lies in steady cash flows and relative resilience compared to other property types. Industrial sentiment softened with 18% of investors favoring the sector, down from 27% the same period a year ago. Retail remained almost unchanged from the year-ago period. 

“Apartment is transitioning from oversupply to the next cycle,” Rasmussen explained, noting that SitusAMC projects apartment vacancy to fall to 3.9% by 2029, with rent growth accelerating to 4.5% over the same period.  

Meanwhile, some investors are growing cautious about industrial, given potential trade impacts. Office remains broadly out of favor, with just 4% of those surveyed choosing the sector, but has reappeared on investors’ radar—thanks in part to improving market sentiment in major metros such as New York City, which is experiencing renewed leasing and transaction activity. 

Cap Rates and Pricing Indicate Early Stabilization 

Third-quarter cap rate data showed modest tightening across most sectors, signaling early signs of stabilization. Multifamily and office cap rates each declined by 10 basis points, while industrial held steady and retail edged up by the same margin. Multifamily cap rates are at their lowest in two years, reflecting sustained investor demand. 

On pricing, industrial led the way with 0.8% monthly growth in August, followed by office at +0.6% and retail at +0.4%. Apartment prices were unchanged, but year-to-date gains across most sectors suggest a modest recovery in momentum. 

Distress Concentrated in Office and Multifamily 

Distress levels remain elevated, particularly in office and multifamily properties. Total U.S. commercial property distress reached $122 billion, up $25 billion year-over-year. “Office distress is nearing Global Financial Crisis levels,” Rasmussen said, “and apartment distress is at its highest in over a decade.”  

By contrast, distress in retail, industrial and hotel assets remains well below crisis levels. Potential distress—defined as early warning signals such as delinquencies or slow lease-ups—is concentrated in multifamily. Geographically, Manhattan, San Francisco and Washington, D.C. lead in distress volume, while the Southeast remains relatively healthy, averaging just 2% of total CRE volume in distress. 

Apartments, Affordability, and the Next Cycle  

Apartment affordability improved modestly in the second quarter, even as single-family housing remains out of reach for many households. “Renting is still more affordable than buying, and that underpins apartment demand,” Muoio said.  

Niche residential segments—senior housing, student housing and affordable housing—have shown remarkable resilience. Since the Fed’s tightening cycle began in 2022, senior housing cap rates have expanded only 20 basis points, affordable housing by 50 and student housing actually tightened 10 basis points.  

Conversions and Retail Outlook Offer Glimmers of Recovery 

A growing trend in office-to-residential conversions could reshape the urban landscape and ease oversupply, as more cities offer zoning changes and tax incentives. SitusAMC research shows this trend could positively impact office vacancy—most notably Cleveland and New York—which could see office vacancy improve by 265 and 100 basis points, respectively, by 2030.  

On the retail front, there are concerns about the health of the consumer amid the rise of “buy now, pay later” (BNPL) loans, short-term loans that carry no interest if full pay off is made within a set time limit. Currently, more than four in ten consumers are considering applying for a BNPL loan, the highest level since 2021, when Lending Tree began collecting the data. One-quarter of BNPL borrowers have used the loans to buy groceries.  

Though these trends are worrisome for household budgets, the retail sector will benefit from limited new supply, with vacancy projected to decline beginning in 2027 and return to pre-GFC levels by 2030, and rents gradually rising as space becomes scarcer. 

A Market Recalibrating Toward Normalcy  

While the data blackout and tariff policies have complicated the macro picture, the broader CRE landscape shows resilience. “We’re seeing a return to balance,” Muoio concluded. “Investors and lenders are adjusting to the new policy regime, capital is loosening, and early signs suggest the market is moving back toward normalcy.” 

View the ValTrends Look Ahead webinar presentation here. Our 24-page ValTrends report will come out at the end of the quarter. Subscribe to be notified as soon as the report is available, and we’ll send a link to download it for free. For more information on SitusAMC Insight’s research, analytical tools or data products, visit our website.