The Inside Look with Xander Snyder - Episode 15

In this episode of The Inside Look, Senior Commercial Real Estate Economist Xander Snyder discusses what to expect in 2025.

CRE Transaction Activity Poised to Increase

At the end of 2024, the CRE market remains slow. But there are reasons to be cautiously optimistic about the new year. To see why, let’s take a look at where transaction activity stands today, how we got here, and what to expect in 2025.

Transaction volume surged in 2021, driven by the ultra low-interest rate environment that followed the pandemic’s onset. However, when the Federal Reserve began its rate hike cycle in early 2022, it didn’t take long for sales volume to decline substantially.

• By 2023, CRE transaction volume plummeted to levels not seen since the early days of the pandemic or, in the case of some asset classes, since the aftermath of the Global Financial Crisis in 2008.

But the decline in sales activity has stopped. In fact, while sales volumes are still low, they are no longer decreasing, and on a trailing twelve month basis have hovered around $300 billion for four consecutive quarters.

The story is arguably even more optimistic for the refinancing market.

• In this chart, you can see similar trends as in the sales market, but unlike sales volume, refinancing volume increased in the third quarter for the first time in

  over two years.

Recovery Not Just an Interest Rate story

While the onset of the Fed’s rate cut cycle will certainly help boost demand to purchase commercial property, the recovery won’t just be an interest rate story.

• After all, a CRE deal can still pencil out with expensive debt…if you buy the property cheaply enough.

• And one thing that has occurred over the last two years while interest rates remained high is significant price discovery. This is the process whereby the gap in price expectations between buyers and sellers that opened up in 2022 has gradually narrowed.

When more people in a market agree on the value of an asset, it becomes easier to consummate sales and refinancings. Broader price agreement, in addition to access to slightly cheaper acquisition financing, will be the fuel that starts the CRE recovery next year.

However, as I’ve come to say more regularly, the CRE market is more like a big ocean liner than a speed boat: it turns slowly. Don’t expect improvement to come all at once, but rather gradually throughout the year.

Upcoming events

This will be our last episode of the Inside Look, so we’ll look forward to seeing you in the new year. In the meantime, I wish you a happy, joyful, and restive holiday season.