If you’ve been keeping an eye on the commercial real estate market this year, you’ll have noticed it isn’t the same whirlwind of activity it once was. After a few years of big moves and fast deals, 2025 has turned a bit more cautious. The pace of transactions has slowed down in many sectors, but don’t let that fool you. There are meaningful opportunities tucked in strategic corners if you know where to look.
One of the biggest things shaping this market remains interest rates. Financing costs have climbed, crossing the 5% mark for well-established properties and climbing even higher for office buildings and retail spaces, which investors view as riskier these days. It means refinancing is tougher, and property owners often face the tough choice, accept a lower price to sell or find creative, usually more expensive, ways to keep their loans afloat. That’s a heavy weight on the market right now, especially with almost a trillion dollars in commercial real estate loans set to mature this year.
Costs beyond borrowing matter too. Inflation, sitting around 2.7%, is quietly nudging up all the expenses tied to properties, from insurance premiums to property taxes and upkeep. Property managers need to be sharp about these costs, often passing them along or trying to boost rents if the market allows. The good news is the overall U.S. economy is steady, with growth near 3%, which helps keep demand for commercial space from slipping too much.
Looking at deals themselves, things look a bit mixed. The total value of commercial real estate transactions has barely inched up by 5%, a clear slowdown from the surge a couple of years ago. Still, investors are showing a preference for fewer but larger deals. Transactions over $100 million are up about 35%, signaling many are betting on solid, quality assets rather than smaller, riskier bets.
Breaking it down by property type offers more clarity. Industrial real estate is holding up well, thanks to ongoing demand for warehouses, data centers, and specialty facilities like cold storage, think of all the goods being moved and stored as e-commerce continues to grow. Multifamily housing is another bright spot with many renters competing for available units given affordability pressures elsewhere.
Retail isn’t completely out of the picture. Some retailers focused on essential services or unique experiences are still pulling in customers, keeping those properties relevant. As for office space, it’s still the tough nut to crack. Vacancies remain high, hovering near 19%, though premium office buildings in top cities like New York, San Francisco, and Dallas are faring a bit better. Many businesses are experimenting with hybrid work models, leading to slower, but visible, improvements in occupancy.
Another trend that’s picking up is portfolio activity. Property owners are combining forces through partnerships and joint ventures to spread risk and improve operational efficiencies. Public-private partnerships are also becoming more common, especially for projects tied to infrastructure and housing, as local governments seek private investment to tackle community needs.
Looking ahead to 2026, the commercial real estate market faces some big questions. Geopolitical uncertainties, rising insurance costs connected to climate risks, and digital security challenges will keep investors on their toes. But this uncertainty also opens the door for shrewd investors who can spot undervalued properties, reposition assets for new uses, or embrace growing sectors like green buildings and data centers.
There’s no denying the market is cautious, but it’s far from bleak. Success in the year to come will belong to those who stay flexible, remain clear-eyed about risks, and find innovative ways to make their capital work in an ever-changing landscape.
