CREFC Survey Shows 80% Expect Worsening CRE Market in Next 12 Months

The CRE Finance Council (CREFC) began 2025 with high hopes for a big year, but that optimism was sharply dampened when President Donald Trump enacted his tariff policy on April 2.

Eighty percent of survey respondents in the CREFC First Quarter 2025 Board of Governors Sentiment Index said they expect worse economic conditions over the next 12 months, marking a dramatic shift from just 12 percent in the fourth quarter. Only 7 percent of the 52 senior commercial real estate finance executives polled are projecting improved market performance in the next year, compared with 42 percent who foresaw better times ahead in the previous survey conducted in January. 

The survey, which was conducted from March 31 to April 7, coincided with President Trump’s “Liberation Day” tariff announcements on April 2 that spurred major hits to the stock market. The CREFC index fell 30.5 percent from a record high of 126.6 after the fourth quarter to 87.9, marking the first time it had fallen below 100 since the beginning of the COVID-19 pandemic in 2020. 

“Markets don’t like the volatility that we are seeing and uncertainty, so those are the two things that I think are driving everyone’s expectations, be it on the relative value or the valuations on commercial and multifamily real estate to cap rates,” Lisa Pendergast, president and CEO of CREFC, told Commercial Observer. “The whole issue of the tariffs in the negotiations that are going to go on between individual countries and the U.S. is just prolonging that instability and uncertainty.”

The CREFC first-quarter survey found that 59 percent of respondents are expecting “negative impacts from government actions,” compared with only 2 percent the previous quarter. 

Eleven percent are predicting positive impacts from Washington, D.C., policies, down from 74 percent in the fourth quarter. 

Sixty percent of survey participants said they were either very or extremely concerned about tariffs in regards to construction costs and CRE development. 

While Trump did pause higher targeted tariffs on most countries for 90 days on April 9, Pendergast said concerns still linger from CREFC members over what future policies may be imposed that could roil markets. Pendergast noted that any negotiations with other countries  for a better deal will take time and only extend uncertainty for CRE markets and how the Federal Reserve may react with interest rate decisions. 

“It’s really difficult to want to close alone when you don’t know what the next day is going to bring or what announcement is going to come,” Pendergast said. “Tariffs are inflationary and also at the same time it could be a stagflation situation where the economy starts to suffer and from a rate perspective it’s impossible to know where rates are going in that environment.” 

Expectations for investment sales transaction volume cooled significantly in the survey, with 35 percent expecting increased transaction activity compared with 86 percent at the close of the fourth quarter and 20 percent projecting less demand, up from 0 percent.  

Forty-eight percent of the survey respondents said they anticipate more demand for financings, down from 91 percent in the last poll with 13 percent expecting less loans, up from 2 percent. 

A vast majority of CREFC board members polled (67 percent) said they expect “moderate negative impacts” for office sector performance from government lease terminations by the Department of Government Efficiency.

Pendergast said the CRE industry could get a boost if the Fed decides to lower interest rates this year due to softening economic conditions, but how to central bank will respond only adds to the uncertainty.

”Inflation isn’t quite where we need it to be consistently to start cutting rates but that may happen sooner now,” Pendergast said. “We don’t know the impact between tariffs and other policies that are coming through so you could see us go the other way pretty quickly.”

Andrew Coen can be reached at acoen@commercialobserver.c