Tectonic Shifts Begin to Energize CRE: 2Q 2025 ValTrends Report

Despite a stubbornly high interest-rate environment, the commercial real estate (CRE) market is showing early signs of a shift. Cap-rate expansion is leveling off, transaction volume is beginning to stir, and originations are heating up. That’s according to the latest ValTrends report, “Tectonic Shifts,” SitusAMC’s quarterly analysis of key movements in the economy, CRE property sectors, capital markets, and the investment environment. Download our free 25-page report for 2Q 2025 here. 

While economic and geopolitical uncertainty remain high, the 10-year Treasury rate has hovered in what some investors call “interest rate purgatory,” barely moving despite daily volatility. After starting June near 4.5%, the yield slid briefly to 4.2% following a weak July jobs report — its first notable decline in some time — before settling around 4.3% in mid-August. 

CRE lending is showing resilience. CBRE’s Lending Momentum Index jumped 45% year-over-year in the second quarter, climbing well above its five-year pre-pandemic average. Alternative lenders now dominate non-agency commercial originations, with their share rising to 34% — up from 25% just a few years ago — as banks and life companies pull back under regulatory pressure. Debt funds led the charge, with an 89% quarter-over-quarter and 52% year-over-year surge in lending volume. 

“After a long period of cap-rate drift following the Fed’s 2022 rate hikes, our data shows stabilization across much of the market,” said Peter Muoio, PhD, Senior Director of SitusAMC Insights. “Ten of the 16 property types we track saw no movement in the second quarter, with modest compression for data centers, industrial R&D, regional malls and student housing.” 

Institutional investors remain optimistic about CRE’s relative performance. SitusAMC’s proprietary quarterly survey found preference for CRE increased in the second quarter due to its safe-haven qualities, even as interest in bonds and cash waned. Capital availability is rising, particularly for equity, while underwriting standards are loosening more noticeably on the debt side. 

Deal volume rose 6% in June to $38 billion — the busiest month of 2025 so far — though still down 16% year-over-year and 20% from its eight-year average. Retail, multifamily, and industrial posted double-digit monthly gains, offset in part by an 18% drop in office activity. 

Overall CRE total returns have stayed in positive territory for the past year, with income, capital, and total returns all above long-term averages, according to the NCREIF ODCE. “The market may still be moving slowly,” said Jen Rasmussen, PhD, Vice President of SitusAMC Insights, “but there’s clearly momentum building under the surface — and plenty of dry powder waiting to be deployed when opportunities arise.”  

Explore full coverage of CRE markets in the second quarter of 2025 by downloading the ValTrends Report “Tectonic Shifts,” here. Our next “ValTrends First Look” webinar takes place on October 23, 2025 at 2pm ET, offering a forward-looking snapshot of the quarter ahead. Register here to attend. Learn more about SitusAMC Insights’ research, analytical tools or RERC data products on our website.