Not so long ago, CRE debt and capital markets had contracted. Inflation, combined with questions about debt maturities and the performance of some asset types (think office), meant that capital and debt weren’t easy to find.

The situation seems to be changing. According to Cushman & Wakefield’s report “Tide is Turning: U.S. Debt Markets are Re-Engaging,” “the CRE debt and capital markets are entering a new phase within the recovery, ushered in by the commencement of the Fed’s easing cycle.

Why It’s Happening

Cushman & Wakefield Senior Economist Abby Corbett, who authored the report, noted certain trends that were “shifting the tides,” including the following:

• Rate-cutting cycle. While the Federal Reserve paused its rate cuts in January 2025, its three rate cuts in 2024 “eased financial conditions across the broader economy,” the report said. Looser financial market conditions have led to an economic ripple effect, providing stronger debt and equity capital access.

• Growing origination volumes. CRE lending origination volumes increased 8% year-over-year in 2024. This suggested that “the acclimation phase is well underway,” Corbett wrote.

• Increased lender activity. The report said that “the pool of active lenders is broadening within lender groups.” To that end, debt fund lender activity increased by 55% above the 2015-2019 average. Meanwhile, the 2024 CMBS lender pool expanded by 42% YoY.

Strategic Factors to Consider

According to the report, CRE investors and developers could take advantage of the current capital situation by:

• Securing short-term floating-rate debt, assuming appropriate terms, strategy and deal profile. Corbett noted that the short end of the yield curve is anticipated to come in through 2025 and into 2026, while the Fed is expected to cut rates by 50 basis points each year.

• Taking advantage of tight fixed-rate debt spreads. The report indicated that already tight corporate bond and CRE debt spreads are contracting further “as competition to place capital pushes them lower.”

• Avoiding stagnation through hyper-focusing on daily minutia. “Accept that we are in a high-volatility era and recognize that it is important not to get left behind,” the report suggested. “Caution, prudence and risk mitigation differ from paralysis.”

Corbett commented that there will be capital market and debt challenges in 2025, and it will likely be “a year of bifurcated, cautious and gradual recovery.” On the other hand, many sectors and markets could be on the high end of the bifurcation with “a broad spectrum of debt liquidity trends, capital flows and allocation trends, and sector-specific tailwinds all working in CRE’s favor,” Corbett wrote.