Auction Services | Macro-Transaction Volume and Pricing Summary
Recovery Gains Steam, but Risks Loom
U.S. CRE deal volume rose for the fourth straight quarter and pricing stabilized after a prolonged downturn, signaling a rebound from the 2022–2023 rate shocks. However, recent tariff-induced market volatility has yet to fully ripple through CRE, potentially disrupting capital flows and investor confidence.
Office Sector Faces Dual Pressure
While office transaction volume edged up due to increased individual asset sales, rising cap rates and a surge in underwater loans—especially for cross-border and private capital—highlight continued stress. The divergence between suburban and CBD cap rates suggests shifting investor preferences and risk perceptions.
Alternative Sectors Show Mixed Momentum
Alternative asset types like student housing saw strong gains, with institutional buyers leading the charge, while medical office and R&D volumes dropped due to prior-year comparables. Private investors broadly exited niche sectors, notably self storage, amid shifting risk appetites.
Maturing Pressures in CRE Debt | Navigating Risk in 2025
The commercial real estate market faces significant headwinds in 2025, particularly as a massive wave of loan maturities collides with a still-challenging capital markets environment. According to CRED iQ’s March 2025 report, while there has been some improvement in distress metrics for CRE CLO (collateralized loan obligation) loans, broader structural challenges remain. The distress rate for CRE CLOs fell by 160 basis points to 14.4% in March, with delinquency rates declining to 11.9% and special servicing rates dropping to 8.5%. Nevertheless, a concerning 69.5% of CRE CLO loans have already passed their maturity dates, and only 15% of loans are current—down sharply from the previous month (CRED iQ, March 2025). These figures highlight growing pressures on borrowers who originated floating-rate, short-term loans in 2021’s low-rate environment but now face elevated refinancing hurdles and rising debt service costs.
Adding further context, RCA’s March 2025 edition of U.S. Capital Trends estimates that more than $625 billion in CRE loans are scheduled to mature this year. Alarmingly, about 16% of traditional income-producing assets would be considered underwater if valued at Q4 2024 levels—where asset valuations have dropped significantly amid a high interest rate backdrop. Office properties are particularly vulnerable, with approximately 31% of office sector maturities underwater, far outpacing distress levels seen in other asset classes. This wave of maturities is not only challenging for borrowers but also exposes lenders, especially those tied to CMBS and investor-driven origination channels, to potential losses. Cross-border investors and private capital sources each account for roughly one-third of the value tied to these underwater loans.
Moving Forward
Together, these findings from CRED iQ and RCA point to a CRE market under continued strain, even as some metrics show slight improvement. Borrowers reliant on extensions, like the case of the 1213 Walnut loan in Philadelphia highlighted by CRED iQ, demonstrate the fragility underpinning many portfolios today. As refinancing grows tougher and property cash flows remain squeezed, lenders, and investors alike must be laser-focused on maturity management, asset-level performance, and sector-specific vulnerabilities to successfully navigate the months ahead.
