Delayed Recovery, Economic Angst Darken CRE’s December Mood 

Stalled, stagnant and sputtering: The postpandemic comeback for commercial real estate was supposed to take off this year, but as the days tick down on 2025, CRE is reckoning with a reality check. 

Although there have been some positive signs in recent months, such as increased demand for Midtown Manhattan and San Francisco offices, a murky macroeconomic forecast has blunted growth prospects and put uncertainty firmly back into the equation.

“We're probably in a lot better spot than we were 18 months ago,” Moody’s Economic Research Director Matt Reidy said. “But we're probably not in as good of a spot as we thought we were six months ago.”

CRE might see an overall decrease in annual transaction volume from 2024 to 2025, despite a more promising start to the year, Reidy said. Moody’s data shows transaction volumes still well below prepandemic levels.

Reidy attributes that to a myriad of ways a darker national economic picture impacts real estate. Moody’s believes the nation as a whole will avoid a recession — barely — but many areas of the country will likely feel that kind of contraction. 

That pessimism has bled through to CRE leadership. A new Deloitte study found that, despite growth in certain segments, the sentiment around future CRE performance declined when looking at expectations for 2026.

Concerns over employment, as well as income growth, have weighed on the multifamily sector, which hoped for rising wages to match projected rent growth figures.  

“The market is moving from a rent growth-optimism approach to a cash flow-realism approach,” Ascent Developer Solutions Chief Financial Officer David Hada said. “If we start to see meaningful macro headwinds rear their heads in the form of spiking unemployment rates or persisting inflation pressure, definitionally, we're going to be even more conservative than we've been thus far.” 

At the same time, the office market has split. Despite action on devalued assets and a flight to quality, many properties face capitalization challenges and devaluation that has slowed down activity. 

“There's certainly a greater percentage of transactions that are being elongated in their schedule, or delayed and then pushed out,” Savills North American Brokerage Chairman Joe Learner said. 

Learner attributes the office slowdown to two major factors: Firms still aren’t sure what their needs are, especially office users navigating hybrid workspace, and the general business landscape.

Between rapid-fire Trump administration policy shifts, tariffs impacts and the sluggish growth of the economy outside of artificial intelligence, it’s a challenging time for businesses to make long-term decisions, especially around space. 

“There’s more pessimism in the general economy than there has been in years past,” Learner said. “This is more than just office. You’re seeing it in the manufacturing economy, too.”

A more deflated marketplace, with lingering uncertainty around capitalization and value, slows everything down. Learner said his team at Savills is working with many buildings in financial duress, which means delays and even checking in with bankruptcy courts.

A significant percentage of buildings have capitalization issues, or may be going through restructuring, which throws sand in the gears of a well-oiled dealmaking machine.   

Trepp data found that commercial mortgage backed securities delinquency rates for office reached a new peak of 11.8% in October. 

Learner said owners of many buildings, which may boast similar occupancy numbers and steadily increasing rents, may find the appraised value of their properties decreased. Unless a property was newly constructed or recently sold, every move needs to be scrutinized, especially with potential recapitalization coming up. 

The macroeconomic morass commercial real estate finds itself in has been buoyed by a sense of optimism, but only around certain assets and projects. Massive development projects, such as data centers and other infrastructure investments, have propped up investment figures and the overall economy. 

And some big companies like Apple are starting to make office purchases and seeking to consolidate office space. Many investors see office valuations have hit a floor, leading large institutional buyers to become net purchasers of office in 2025, according to MSCI figures, the first time that’s happened since 2022. 

And there’s been moves toward seeking out and profiting off the value in the market. According to CBRE data, lending momentum in commercial real estate last quarter reached its highest level since 2018. Internal CBRE data shows that loan closings for the firm jumped 112% year-over-year in Q3, with significant increases in permanent loan financing and private lending. 

A clue to the seemingly contradictory data may come in deal size, with a handful of larger deals and transactions obscuring the larger challenges in the market. Moody’s found a “flight to quality” in deal size, with large-scale deals dominating. Third-quarter deals over $100M were up 35% compared to 2024. 

This kind of top-heavy performance can be seen in construction starts as well. Dodge Construction Network data found that while total spending on construction in October boomed, it was concentrated in megaprojects around natural gas and data centers. Total starts are actually down 5.4% year to date through October.

“If I had to put a general view on it, 2026 is going to be a choppy market,” Hada said. “We’re going to proceed with caution.”