News Summary
International investors are increasingly reevaluating their investments in U.S. commercial real estate due to concerns over tariffs and trade tensions. This shift in sentiment is expected to affect market liquidity and property prices. Distress levels in the sector have risen significantly, and while there are signs of recovery in certain segments, the construction pipeline is contracting. Investors remain cautious, focusing on risks associated with liquidity, distressed assets, and interest rates.
New York City — August 2025
Global investors are increasingly reassessing their exposure to U.S. commercial real estate (CRE), mainly due to growing concerns over tariffs and trade policies that threaten investment stability. This shift is prompting cautious behavior among international and domestic investors, which could have a significant impact on the U.S. property market moving forward.
Decreased Cross-Border Investment and Potential Market Impacts
Over the past decade, the U.S. has been the largest market for global CRE transactions, accounting for approximately 38% of worldwide activity. Historically, foreign investors have favored industrial warehouses and central business district offices in key gateway markets, especially New York City. However, recent geopolitical tensions and tariff uncertainties have led to a noticeable pullback of cross-border capital.
This reduction in foreign investment risks liquidity constraints and pressure on property prices across U.S. markets. Analysts warn that if the trend persists, the U.S. commercial real estate sector could face notable challenges, including decreased transaction volumes and stagnating asset values.
Risks and Opportunities in U.S. Commercial Real Estate
The industry is observing a rise in distress and delinquencies among property owners. At the end of the first quarter of 2025, distress-related assets exceeded $116 billion, representing a 23% increase compared to previous periods. Rising distress levels indicate financial stress within the sector, partly driven by a contraction in construction activity and rising borrowing costs.
The U.S. economy experienced a slight contraction of 1.3% in gross domestic product (GDP) during the first quarter, mostly attributed to increased imports prior to tariff implementation and decreased government spending. During the same period, unemployment rose by 10 basis points to 4.2%, although over 520,000 jobs were added in the first part of 2025, reflecting ongoing labor market strength.
Market Performance and Sector Trends
Within the commercial real estate sector, office leasing activity demonstrated signs of recovery, with volume increasing by 18% quarter-over-quarter in Q1 2025. This growth suggests companies are starting to renew leases earlier, signaling confidence in the market. Conversely, retail real estate is experiencing a slight uptick in availability rates, which rose to 4.8% in the first quarter. Negative absorption trends in key retail sectors are affecting rental income and property valuations.
Meanwhile, the construction pipeline for new CRE projects continues to shrink, mainly due to escalating costs and supply chain delays. Notably, retail construction completions have fallen to their lowest levels in over ten years, further constraining development activity.
Financing and Investment Outlook
With over $1 trillion in CRE loans set to mature by the end of 2026, private credit is expected to emerge as a vital source of financing. However, higher interest rates present challenges for borrowers, compelling them to reevaluate their refinancing strategies and explore alternative financing options.
Despite these headwinds, investment activity remains resilient. April 2025 saw a substantial inflow of capital into CRE, with projections indicating a possible 8% increase in overall investment volumes this year. Both traditional lenders and private lenders continue to compete actively, creating a tight lending environment for new acquisitions and refinancing efforts.
Sector Preferences and Future Projections
Investors are maintaining interest in multifamily and industrial properties, which continue to attract capital flows due to their perceived resilience. On the other hand, interest in retail and office assets appears to be shifting, with some investors adopting a more cautious stance amidst ongoing market volatility.
Looking ahead, market experts anticipate that property values could witness growth in 2025, despite the volatile environment. Such optimism hinges on steady employment, continued leasing activity, and ongoing investment despite tariffs and economic uncertainties.
Market Risks and the Broader Financial Environment
The bond market’s response to fiscal policies, such as budget deficits, contributes to volatility that can impact CRE investments. Nonetheless, both traditional and private lenders remain active, fostering a competitive lending landscape. This environment is likely to persist as borrowers seek to secure financing for acquisitions and refinancing.
Overall, the U.S. commercial real estate sector in 2025 is navigating a complex landscape characterized by cautious investment, sector-specific shifts, and adaptation to economic and geopolitical challenges. While risks remain prominent, opportunities persist, outlining a cautiously optimistic outlook for the sector’s near-term future.
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Additional Resources
- Invesco: What If Investors Pull Back from U.S. Real Estate
- Wall Street Journal: Private Credit Can Bring Risk Along with Liquidity to Commercial Property Finance
- Bloomberg: Commercial Real Estate Distress is Spreading
- Altus Group: U.S. CRE Transactions Insights
- RE Journals: The Evolving Landscape of Private Credit in U.S. Commercial Real Estate Lending
- Wikipedia: Commercial Real Estate
- Google Search: Commercial Real Estate Investment Trends
- Google Scholar: Private Credit in Real Estate
- Encyclopedia Britannica: Real Estate
- Google News: Commercial Real Estate News
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