By Partner Valuation Advisors Eric Enloe

A New Administration and a Shifting Market 

The first 100 days of 2025 have ushered in a wave of change for the commercial real estate (CRE) industry. With a new administration in place, the market has experienced a flurry of executive orders and policy shifts that have both stirred uncertainty and sparked optimism. Investor sentiment has improved, capital markets are showing signs of recovery, and short-term interest rates have declined. However, long-term rates remain elevated, and geopolitical tensions continue to cast a shadow over the broader economic outlook. 

Capital Markets and Investor Sentiment 

Movements in the 10-year Treasury yield have been particularly influential, starting the year between 4.5% and 4.6%, followed by a drop to nearly 4% in April, and recently climbing back up to nearly 4.5%. While concerns exist about a potential recession, institutional investors such as Blackstone and KKR have taken a bullish stance, refinancing large portfolios and leaning on CMBS to support acquisitions, an indication that many believe the market is poised for recovery. However, we have seen some investors hit pause on acquisitions as well as table new development activity due to the uncertainty on where the economy is heading. Overall, market participants are looking for economic indicators that will provide them with the conviction to invest. 

Policy Impacts and Lending Outlook 

The administration’s early policy moves have been largely viewed as a net positive for CRE. While tariffs remain a wildcard, they could ultimately stimulate domestic industrial development. The key question is whether the cost advantages of overseas production will continue to outweigh the benefits of reshoring. For now, institutional investors appear to be moving forward with renewed confidence, developing business plans, and seeking opportunities to deploy capital that had been sitting idle. 

A critical factor to watch is the return of major banks to active lending. With many having been repaid on prior loans, they now have capital to re-enter the market. Clearer underwriting standards and a narrowing gap between buyer and seller expectations are helping to reestablish pricing clarity and encourage more listings. This, in turn, is restoring confidence across the board—from lenders and investors to brokers and valuation professionals. 

Retail Darling 

Retail has truly emerged as something of a darling among the core four property types over the past year. Unlike multifamily and industrial, retail capitalization rates in 2021 and 2022 didn’t fall as sharply. This meant less of a value correction was needed when borrowing costs rose. 

While dead malls continue to struggle, community centers and grocery-anchored centers have held up well and remain highly attractive. 

The pandemic briefly paused in-person shopping, raising doubts about whether consumers would return to physical stores. But retail centers have bounced back, with strong sales volumes. One of our recent valuations involved a 300,000-square-foot luxury center generating over $2,500 per square foot in sales, placing it among the top in the country. 

National retailers are performing well overall, though there are concerns about the future of large department stores. As some close, new types of anchor tenants are stepping in, reshaping the retail landscape. 

Office Opportunities 

Office remains a contrarian opportunity, driven by the fundamentals of supply and demand. While much of the class B and C inventory faces long-term challenges, well-located class A and B+ properties that need modest upgrades are showing promise. Return to office momentum is building, and leasing activity in high-quality assets is improving. With generous tenant incentives still in play, buyers with the right basis are finding compelling opportunities in this segment. 

Multifamily: Diverging Markets 

Rent control measures are having a chilling effect on the apartment market, particularly in Montgomery County and Prince George’s County near Washington, DC. In 2023, both counties enacted laws capping rent increases, 6% in Montgomery and the lower of 3% or the inflation rate in Prince George’s. These limits apply to both occupied and vacant units. 

As a result, multifamily transaction volume in the two counties dropped 13% in the first three quarters of 2024 compared to the same period in 2023, according to MSCI Real Assets. The legislation is also complicating financing for capital improvements and redevelopment, as the exemption criteria remain unclear. Institutional investors are increasingly avoiding these areas in favor of nearby markets with more predictable regulatory environments. 

Northern Virginia, for example, saw a surge in multifamily transaction volume of 155% over the same period. It has now become one of the top three markets nationally for institutional multifamily investment. 

Meanwhile, oversupplied markets like Austin and Nashville are facing short-term challenges. However, long-term fundamentals remain strong. These markets offer patient capital the opportunity to capitalize on current dislocations and secure attractive entry points. Despite current softness, both are expected to be among the best-performing multifamily markets over the next five to ten years. 

Industrial Demand 

Industrial real estate continues to benefit from strong demand, particularly near ports, airports, and major transportation hubs. Much of the country’s industrial inventory is outdated, with ceiling heights that fall short of modern standards. This obsolescence presents opportunities for redevelopment, whether through infill projects or new bulk distribution centers on larger land parcels. 

Strategic Outlook for Investors 

Looking ahead, investors must balance the positives, such as interest rate cuts and a more business-friendly post-election climate, against ongoing challenges like tariff uncertainty and capital market volatility. Strategic decisions should be grounded in supply and demand fundamentals, especially amid ongoing market commentary pointing to declining values in certain sectors and heightened challenges for specific product types. While some of that may be true, it’s important not to paint the entire market with a broad brush. Dislocation in certain areas has created compelling opportunities, particularly in growth markets where investors can enter at attractive bases. With a long-term view and patient capital, these investments could yield outsized returns over the next three to five years. 

Ultimately, the CRE market is in a period of recalibration. While headlines may focus on declining values, the underlying fundamentals suggest that opportunities abound for those who are well-informed and well-positioned. In this environment, objective, data-driven valuation expertise is not just helpful—it’s essential. Third-party consultants can provide the clarity needed to navigate shifting dynamics, evaluate repositioning strategies, and make confident investment decisions. 

Eric Enloe, MAI, CRE, FRICS, Senior Managing Director, Partner Valuation Advisors, directs valuation and consulting engagements related to a wide variety of property types for national institutional assets and portfolios. His broad range of experience in valuation and analysis includes retail, office, industrial, multi-family, development land, manufactured housing, regional malls, hotels, self-storage, and educational facilities.