The commercial real estate (CRE) market is entering the latter half of 2025 with both challenges and opportunities. After several years of volatility, shifting demand patterns, and tightening financial conditions, signs of stabilization are beginning to emerge. For accredited investors, the coming 12 to 18 months may represent a rare window to reallocate capital strategically and position for potential recovery.
Signs of Recovery?
Broader economic conditions continue to shape the CRE market’s trajectory. The U.S. economy is slowing, with CBRE revising its 2025 GDP growth forecast to 1.5% as trade policy uncertainty and Treasury yields near 4.3% weigh on sentiment¹. At the same time, mid-2025 tax and spending legislation introduced new incentives that support CRE ownership, balancing some of the pressures from elevated debt costs¹.
These countervailing forces suggest that while headwinds remain, structural tailwinds, particularly policy support, are helping reset investor expectations.
Capital Markets and Investment Activity Reflect a Rebound
Capital markets have begun showing early signs of recovery. CBRE projects CRE investment activity to rise about 10% in 2025 despite macro uncertainty¹. Yet deal volume has remained uneven. In April 2025, hotel transaction activity fell 52% year-over-year, and warehouse sales declined 34%².
Private capital, however, is stepping in where banks have pulled back. Firms like Fortress Investment Group are actively providing loans and debt solutions, creating new liquidity pathways for borrowers². For investors, this environment underscores the importance of flexibility and selectivity in capital deployment.
Sector Dynamics and Emerging Trends
Office: Supply Adjustment and Adaptive Reuse
The office sector, long hampered by oversupply, is finally undergoing structural change. U.S. office supply is on track to contract in 2025 for the first time in 25 years, as demolitions and conversions outpace new development³. Vacancy remains elevated at roughly 19%, but leasing activity is improving, particularly in Class A buildings³.
Office-to-residential conversions have surged, up 357% since 2021, with nearly 1.4 billion square feet identified for potential repurposing¹. Incentives and falling property values are accelerating this trend, offering long-term opportunity for repositioning.
Industrial and Logistics: Resilient with Selective Cooling
Industrial demand remains relatively stable, though the era of mega-leases is tapering. Oversupply issues that emerged in 2024 are beginning to ease, allowing for the possibility of more balanced growth¹.
Retail: Constrained Availability
Retail fundamentals are tighter than expected. Availability is limited, particularly in open-air centers located in strong demographic corridors. With little new construction coming online, tenant demand is expected to sustain value in the sector¹.
Multifamily: Rent Recovery Underway
Multifamily rents appear to have bottomed nationally. Markets in the Midwest and Pacific Northwest are already showing stronger rent growth, supported by reduced supply pipelines¹. For investors, these geographies may offer the most attractive near-term opportunities.
Data Centers: Growth Amid Constraints
Data centers remain one of the strongest CRE subsectors. Preleasing rates are exceeding 75%, though expansion is constrained by power availability and construction delays¹. These fundamentals point to continued growth with limited risk of oversupply.
CRE Financing and the Debt Landscape
The debt environment remains one of the most significant challenges. More than $4.7 trillion in outstanding CRE debt faces maturities through 2027, creating liquidity stress in an elevated interest rate environment¹.
Declining valuations in certain property types are compounding the issue.
Creative financing structures and partnerships with private capital providers are becoming critical for investors to navigate refinancing needs and access strategic opportunities.
What 2026 Could Offer: A Window of Active Recovery
By 2026, market conditions across sectors are expected to improve as supply tapers and demand normalizes. Office conversions, industrial stability, and multifamily rent growth could support broader recovery. For investors, the next 12–18 months may represent a favorable entry point before competition intensifies and valuations recover.
Strategic Considerations for Accredited Investors
For accredited investors evaluating CRE allocations through vehicles like Delaware Statutory Trusts (DSTs), selectivity will be key. Focus on asset types and markets already showing signs of stabilization or benefiting from structural demand drivers.
Investors may want to explore office-to-residential conversion strategies, debt recapitalization plays, and data center exposure for diversification. The CRE market is emerging from a period of stress into one defined by cautious optimism. Investors who can align capital with sectors positioned for potential recovery, while leveraging the advantages of tax-deferral strategies, may be well-placed to benefit from this next phase of the cycle.
Contact us today to discuss by emailing info@firstguardiangroup.com or schedule a no-obligation consultation today!
CBRE, 2025 U.S. Real Estate Market Outlook: Midyear Review (July 2025).
Business Insider, Commercial real estate sales activity plunges in April (June 2025).
Wall Street Journal, Developers Are Finally Dealing With the Office-Oversupply Problem (June 2025).
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