Commercial Real Estate Capital and Leasing in 2025: Surprise, Surprise

Call it the year of weird.

The last 12 months in commercial real estate have seen everything from a new presidential administration — occupied once again by America’s most notorious reality TV real estate developer-turned-politician — to the wisdom (or folly) of his unprecedented and disruptive global tariff regime, and the longest federal government shutdown ever recorded, not to mention the consistent stream of geopolitical turmoil burning across all hemispheres.  

SEE ALSO: Sunday Summary: Laying to Rest Two Giants

Did we mention the long-awaited cut to short-term interest rates courtesy of the Federal Reserve? That happened, too, and helped (moderately) juice the market. But subsequent uncertainty related to political interference in Fed operations, along with a national debt growing to an eye-popping $38 trillion, pushed long-term bond yields above 4 percent all year and likely long into the future.   

And, oh yeah, New York City just elected an avowed socialist who has embraced rent freezes.

“This past year has been a reminder, from a private market standpoint, for those who make multiyear investments and oversee that capital on five- to 10-year timelines, that you have to keep a steady hand on the wheel,” said Chase Bolding, managing director and chief investment officer at Invesco Real Estate. “It’s tempting to jerk in one direction, but you have to be awake, alert and thinking about [the world], and in no way put your head in the sand.”

Even amid the various upheavals and inconsistencies, commercial real estate seemed to regain its footing. Newmark found that CRE investment sales nationwide increased 19 percent year-over-year through the end of the third quarter, while CRE debt originations volumes, buttressed by a decline in interest rates, rose 48 percent in 2025, compared to the prior year.

“Price discovery, not rate cuts, restarted the market,” said Miles Treaster, president of capital markets for the Americas at Cushman & Wakefield. “Buyers re-emerged when valuations were reset, particularly around office and multifamily, and, while the Fed repivoting was a seminal event for investors, it was price discovery that actually created enough clarity for capital to re-enter the market.” 

For David Bitner, executive managing director of global research at Newmark, the prevailing lesson of 2025 was, as he deftly put it, “The show must go on.” 

Bitner noted that coming into the year, cap rates were still tight, banks weren’t expected to lend due to an overhang of COVID-era distress, and liquidity was expected to remain low. But contrary to popular opinion, the lending sector actually opened back up, notably with banks returning to the fold in a big way and lending at 2019 levels. 

A November 2025 report from CBRE found that firm-originated CRE loan closings across the U.S. increased 112 percent year-over-year in the third quarter of 2025, and that bank CRE origination volumes rose a staggering 167 percent annually. 

Commercial mortgage-backed securities (CMBS) lending saw its volumes increase by a factor of five in the last year. Today those securitized originations claim nearly a 20 percent lending share of U.S. deals, up from 5 percent last year, according to CBRE. 

“You saw a new willingness from the banks to re-engage, and that’s very important,” said Bitner. 

“Now, we have all of the lending sectors on fire, and there’s enough competition that lending spreads have come in a bit, which has made the cap rates a little more digestible.” 

However, for Todd Henderson, head of Americas real estate at DWS Group, 2025 could best be described as a year broken into a strong first quarter and an encouraging fourth quarter, with a large chunk of the middle of the year — call it halftime — interrupted by what he called “the tariff tantrum,” which created economic uncertainty and froze investor allocations. 

“We had investors pausing, and so what started as a very optimistic year suddenly turned into ‘Back to the Future,’ and became very similar to the previous years we experienced between 2022 and 2024,” said Henderson.

As the year turns the page, capital markets players have seen interest rates not only decline but also stabilize, which has crystalized a key lesson to Henderson: It’s not the actual movement of rates, but the direction and understanding of where they’re going that matters most — capital allocators don’t like to make deployment decisions when they’re not confident in the cost of capital, he said.  

“We’ve become much more confident in cost of capital, demand has picked up across all the sectors, and there’s an improving fundamental picture,” said Henderson. “All that translates into a year that might finish the way we thought it would when it started.”

But the year started not with a bang or a whimper, but rather with a shocking declaration of liberation. 

The tariff fiasco 

While the year began with plenty of sturm und drang (remember Elon Musk closing down government offices in Washington, D.C., and wielding a chain saw at CPAC?), the real action began on April 2. 

Days after President Donald Trump announced widespread, unilateral tariffs across nearly all U.S. global trading partners, the Dow Jones Industrial Index and S&P 500 each plummeted by double digits, while Treasury yields rose and fell into a schizophrenic abandon, in turn pausing activity and creating a momentary, but chilling, effect on numerous CRE deals. 

Scott Rechler, chairman of RXR, told Commercial Observer that heading into the year he expected both Trump tailwinds — stemming from deregulation, tax cuts and pro-business policies — and Trump turbulence, largely coming out of everything else associated with the 45th and 47th president. 

But Rechler emphasized that the tariffs were combustible, even by Trump’s standards, and that they impacted his $1.08 billion purchase of 590 Madison Avenue, a 42-story office building in Manhattan, which mercifully closed in August (the largest office sale in New York for the year).

“As we worked through [securing acquisition financing for] 590 Madison, there were 10 bidders on the first round and one bidder on the second round because no financing was available anymore,” he recalled. “Basically, lenders put their pencils down. It definitely created a moment.” 

James Zumot, managing director for real estate investments at Siguler Guff, a CRE investment firm, described Trump’s tariffs as “a business as usual” type of event, but only in the sense that market participants already were expecting construction costs to remain high and for value-add projects to stay prohibitively expensive.  

“Even before Liberation Day, people were looking at 14 percent increases in their development budgets, and it basically created another year of that,” said Zumot. “It’s been very difficult for the market to swallow, and certainly sucked out enthusiasm from new developments.”  

Others, however, argued that the effects of Liberation Day were mostly muted, and that transactions never stopped because of the increased liquidity that rushed into the market following the initial interest rate cut by the Federal Reserve in late 2024. (Also, the administration was completely inconsistent in how long individual tariffs would be imposed, or how painful they would be.)

“Liberation Day was effectively a non-event, and, on a rolling 12-month basis, every week after April 2, we had an increased amount of loans go under application and an increased amount of sales hit the market,” said Michael Gigliotti, senior managing director and co-head of the New York office of JLL Capital Markets. “You’d think there’d be a dip, but it was just a freight train of activity.” 

Newmark’s Bitner admitted that while he “didn’t feel particularly liberated” by the tariffs, he largely agreed with Gigliotti’s sentiment and said that his initial instinct that reciprocal tariffs would pose a significant risk to the economy, particularly to industrial assets, was largely misfounded. 

“[Liberation Day] was clearly less disruptive than I’d say your average economist thought it would be,” said Bitner. “The lesson of 2025 is that everything is more complex than you think, and complexity often leads to resilience and sometimes to unexpected fragility.” 

May we talk about the new mayor?

Tariffs weren’t the only policy from the Trump administration that carried wide-ranging effects across commercial real estate.

Trump announced early in the year that he planned to privatize national mortgage giants Fannie Mae and Freddie Mac, entities carrying a home loan portfolio estimated at $7.5 trillion that have been under the control of the Federal Housing Finance Agency since 2008. 

The administration’s ad-hoc plans include selling up to $30 billion in preferred shares of Fannie and Freddie on the open market, which would be the largest initial public offering in history. 

However, the vision behind privatization remains hazy, especially whether the entities would merge or stay separate, to say nothing of its effects on the home mortgage market. 

Glenn Brill, a managing director of FTI Consulting, a financial advisory firm, told CO in August that under privatization “mortgages will get more expensive,” and that some economists believe it would “almost immediately drive up home mortgage rates 100 basis points.”

And not all policies impacting the industry emerged from the White House in 2025. 

In November, New York City elected Zohran Mamdani, a democratic socialist state lawmaker, who has vowed to freeze rents on the city’s 1 million rent-stabilized apartments, tax millionaires and billionaires (including many CRE professionals), and invest $100 billion to build 200,000 new homes.

While the mayor-elect will need state cooperation and approval to raise taxes, he has the power to appoint freeze-amenable members to the city’s Rent Guidelines Board. Most importantly, he’ll have the expressed cooperation of a left-leaning City Council to enact property tax increases and other agenda items within the confines of the five boroughs. 

“I don’t think it will be better [for the city],” David Levinson, chairman and CEO of L&L Holding Company, said at a Nov. 25 CO-sponsored forum on office leasing in New York, “but it’s a question of how much more difficult it will be.”

If Mamdani were to get his way on rents, he’d be tinkering with a resurgent multifamily sector in New York. Multifamily sales volume reached more than $7 billion during the first nine months of 2025, according to data from Ariel Property Advisors. 

Even so, Mamdani’s ultimate impact on the city’s housing market remains an open question, with many unknowns, particularly the makeup of the Rent Guidelines Board. 

“A mayor cannot repeal it or rewrite rent regulations,” wrote Lev Mavashev, founder and principal of Alpha Realty, a New York brokerage focusing on multifamily, in a CO op-ed. “It’s not a lever that a mayor can be pulled unilaterally. A rent-freeze slogan might make headlines, but slogans don’t make policy.” 

Open for business

If 2025 will be known for anything, other than tariffs and Mamdani, it will be for the return of liquidity. 

National CRE lending jumped from $395 billion in the first three quarters of 2024 to $587 billion in the first three quarters of 2025, much of it aided by the renewed interest from borrowers for CMBS. Issuance increased 37 percent year-over-year, with securitizations on pace for their second-highest mark in the last 18 years. 

“What we’ve seen in the world is there’s a lot of liquidity for CRE and, when that train is rolling down the tracks, it takes something really catastrophic to stop it,” said Gigliotti. “So the theme, or lesson, for 2025 was resilience.” 

Bank lending is up 85 percent year-over-year, while insurance company and agency lending (i.e. Fannie Mae and Freddie Mac) lending volumes are up 29 percent and 41 percent, respectively, according to Newmark. 

“You’ve seen it become more competitive, with more players, spreads have narrowed, more lenders are willing to provide increased leverage,” said Rechler. “I wouldn’t say it’s risky, but it’s more of a borrower’s market now than a lender’s market.” 

Invesco’s Bolding, who primarily works on the equity side of the equation, said that a major lesson from the return of liquidity in 2025 has been the reminder that credit availability, and credit terms, drive equity discount rates and can often be very accretive for that side of the capital stack.

“The availability and the price of credit is a key determinant for equity, and that’s been extremely profound and a dominant force this year,” said Bolding, who added that the growth of cash flow across asset classes has been the real workhorse of this CRE recovery. “I think cash flow growth comprising the lion’s share of the increase in values is something people have gotten back in touch with.”

C&W’s Treaster said the increased liquidity, and tight credit spreads (i.e. a smaller difference between the yield on a riskier bond like a CMBS loan and the risk-free U.S. Treasury) have kept debt markets not only functional, but downright frothy. The increased liquidity has allowed spreads to stay tight, rather than open wide, which would signal higher fears of risk, even amid the tariff hysteria.  

“Debt markets are functioning as well as we’ve ever seen,” said Treaster. “The amount of the credit is unparalleled to anything I’ve ever seen.”

Not everyone in CRE believes the surge of credit has been a good thing. 

Toby Cobb, co-founder and managing partner of 3650 Capital, a private lender, said credit metrics are so tight across the board — whether that’s high-yield bonds, leveraged finance, corporate credit and CMBS — that it has incentivized dangerous behavior. Investors have moved into riskier assets in search of yield at the same time that lenders have thrown covenants out the window amid the onslaught in competition. In many ways, it reminds him of the run-up to the 2008 financial crisis. 

“Do I think we’re now 2005 in terms of timeline? Maybe we are, maybe we’re two or three years away from anyone recognizing the problem,” said Cobb. “But credit is too loose right now, and investors don’t see any problems — they keep pouring money into credit because it’s safer than equity. 

“It doesn’t smell right,” he added. 

Cobb pointed the finger at private credit — corporate and real estate loans originated by private, non-bank lenders — that saw its originations grow from $141 billion in 2013 to $853 billion in 2023, according to financial data provider Preqin. Today the industry is estimated to sit at $1.7 trillion and is expected to double its asset volume by the end of the decade. 

Cobb said that his lending firm has been more conservative, and put out less money in 2025 than in prior years, simply because of the fears surrounding the explosion of credit. 

He noted that debt funds and alternative lenders have no regulatory authority, no incentive to highlight problems, and have no need to reserve capital — turning the former masters of the universe into masters of their own future, and ours, at least until it’s too late. 

“We think credit is sketchier than it has been in a while,” said Cobb. “Capital seems incredibly abundant, and that’s when people make bad decisions.”

But if the golden age in credit hasn’t exposed any dangers that might lurk within it, much of that cushion has come from a rebirth of the office market in America’s largest cities, and the workouts and leasing that kept office distress at bay in 2025. 

The Big Apple comeback

As recently as 24 months ago, U.S. office was left for dead — or at best considered a four-letter word. 

Manhattan, the nation’s premier office market, leased 21.7 million square feet in 2023, a 20 percent decrease from the amount of space leased in 2022, per JLL. And while things looked up in 2024 — Manhattan’s office leasing reached 33.3 million square feet by the end of the fourth quarter in 2024, representing the highest full-year demand since 2019, per Colliers — it was unclear whether the asset class would return to its lofty pre-pandemic status. 

But 2025 taught us that office, particularly in New York City and San Francisco, is mounting a durable comeback. 

“That’s the one that surprised me the most — how much capital has come back to that sector and how quickly it has,” said Treaster. “Now people realize these things aren’t going away and people are going back to the office for its higher efficiencies and connections.” 

Speaking at a REBNY lunch on Dec. 4, Marc Holliday, CEO of SL Green, the largest office landlord in New York City, said that “our top buildings — which is 75 percent of our portfolio — are going to be 96 percent full next year.”

Citing firm data, Bruce Mosler, Cushman & Wakefield’s chairman of global brokerage, noted that new leasing and renewal leasing in Manhattan from January to November increased 16.5 percent annually, reaching 34.3 million square feet and with 44 leases exceeding 100,000 square feet.

“We’ll end this year at probably 38 million square feet, signaling a rebound driven by finance, tech, legal and even AI tenants,” said Mosler. “It’s not just about the square footage. It’s also that rents have risen, and for the first time we’re seeing a rise in net rents. This is significant.” 

New York and San Francisco both saw their office markets return to form on the backs of tenants working with artificial intelligence firms. 

CBRE predicted AI-driven firms will likely lease 16 million square feet in San Francisco between May 2025 and 2030, or roughly 2.7 million square feet annually. 

Software firm VTS found over a three-month period ending in August, 59 percent of the overall office demand in the city came from the tech/AI industry. 

But it’s targeted investments by sponsors into amenities that has also helped the sector recover from the COVID-era doldrums. 

Mary Ann Tighe, CEO of CBRE’s New York tri-state region, said that sponsors and brokers alike learned in 2025 that companies will pay significantly higher rent inside an office if it makes their employees comfortable to return to work. That focus on new amenities has turned office into a sector that is slowly starting to look an awful lot like hospitality. 

“That’s the biggest lesson we’ve learned on the leasing side: There wasn’t price resistance for the right product,” Tighe said. “This has been the year where tenants who pay $80 per square foot are relocating to buildings looking for $130 to $150 per square foot.”

Manhattan’s office vacancy rate declined 370 basis points in the last 12 months and sits at a national low of 13 percent. Other major markets saw similar drops. San Francisco’s vacancy rate declined 350 basis points to 23 percent, and Houston’s dropped 420 basis points to 20.2 percent, according to Yardi Matrix. 

This renewed excitement in office has translated into increased investment sales. 

The U.S. office market recorded $42.6 billion in sales through the end of October 2025, increasing 46 percent from the $29.2 billion the sector recorded during the same period one year earlier. All told, nearly a dozen U.S. metros recorded $1 billion or more of office trades in the first three quarters of the year, with Manhattan and San Francisco leading the way with $6.4 billion and $4.4 billion in sales, respectively. 

This has hastened both credit and equity investments into a once fatally flawed asset class. 

Will Silverman, managing director at Easdil Secured, told CO in November that his firm did $9.5 billion in office financing in New York City alone in 2025 and $30 billion nationwide. 

RXR’s Rechler argued the sector faced dislocation, rather than distress, and that the lack of clarity on pricing allowed firms like his own to buy into office assets at generationally low values. To this end, RXR has bought 7.5 million square feet of New York office in the last 24 months. 

“Mostly, it was mainly working our way through capital structures, buying institutional interests,” said Rechler. “And, so, what’s happening in New York is the office leasing market led the way. The demand of tenants for space, in turn, led to the finance markets, [single-asset, single buyer CMBS in particular], coming back.”

Dan Berman, managing partner U.S. real estate at law firm HSF Kramer, said he started off the year doing distressed deals recapitalizing office properties with relatively little urgency, but soon began seeing office pricing snap back and accelerate in ways faster than he, or anyone else, could have anticipated. 

“My sense is those opportunities, for really good product in really good locations, are much more competitive now,” he said. “The market is back in a really big way.”

Siguler Guff’s Zumot cautioned, though, that assets like office and multifamily are filled with caveats, and lessons, on why each is different and will get inconsistent pricing. 

“The better office assets are finding ways to refinance, and the weaker properties are the ones selling because they’re out of time of their lender and the lender is flushing it,” he said. 

Not everyone has bought into the rebirth of office, or that the renewed investment sales and leasing activity has resolved all the distress that spooked so many CRE players for the first half of the decade. 

DWS’s Henderson conceded that larger cities and their submarkets have improved, but once we enter suburban office markets, or smaller U.S. cities, things begin to look bleak, and the overall vacancy level of national office sits at 18.6 percent, near record highs. 

“Office is still challenged, and the principal challenge with office is the amount of capital that needs to be deployed to keep office operating and leased,” said Henderson. “It requires you to rebuild the buildings from the inside out every 10 years, if not sooner, and that’s not a formula for consistent income returns.”

Even an office leasing maven like Mary Ann Tighe admitted the viability of the office sector remains “all over the map,” and that 2026 should further define the health of the sector. 

“Some things remain viable and others things, with significant or modest capital investment, can be viable, and other things should be land and need to face the music of being knocked down,” she said. 

A skeptic like 3650 Capital’s Cobb believes the credit performance of office and multifamily markets continues to defy logic, mainly because the cost of capital had increased so dramatically across the board at a time when rent growth lagged behind for so many months, if not years, making him question why there wasn’t a cathartic release of distress in 2025.

“Everything continues to perform as if everything is magically great, the biggest lenders continue to make tons of loans, and capital is widely available,” said Cobb. “So I’m shocked no one has said, ‘Hey we got problems here.’”  

Maybe that’s what 2026 will bring. 

Brian Pascus can be reached at bpascus@commercialobserver.com.