Investor Insights

CRE Investors are Increasingly Bullish,
Hinting at Start of New Cycle

A quartet of factors provide optimism for the future. Commercial real estate investors have an increasingly positive outlook for the industry, with many citing four trends as evidence that a new business cycle has begun. 

Investors responding to pricing adjustments. Commercial asset pricing has reset over the past few years, drawing interest

• Cap rates on transactions closed so far in 2025 have increased by about 80 basis points to 130 basis points on average from where they were in 2022, depending on property type, geography, and other factors.
• In many cases, investors are capitalizing on this positive leverage, including acquiring high-quality assets at below replacement cost. These buyers are filling their portfolios with well-priced properties with upside potential.

Multiple tailwinds aiding CRE operations. The second trend influencing investor sentiment is the positive performance outlook across many commercial property categories. 

• The multifamily sector outlook is bolstered by an average rent that remains well below the typical mortgage payment for today's homebuyer. Less construction in many markets amid a national housing shortfall adds further support.
• For office investors, consistently positive net space absorption since early 2024 has lifted confidence. Many investors believe that select assets, especially high-amenity buildings in walkable urban cores, will outperform the sector.
• Industrial investors cite the performance of small bay and infill properties. As with the multifamily sector, the falling pace of industrial construction is a tailwind for existing properties.
• Among retail properties, those anchored or shadow anchored by a grocer or other necessity retailers spark the most positive sentiments. The very limited retail development pipeline is a further assist.

Many believe interest rates will dip lower in 2026. The interest rate outlook is also giving numerous investors a favorable disposition.

• Many investors expect that the 10-Year Treasury could dip into the upper 3 percent range over the course of next year, a slight decrease from the norm in 2025.
• The potential for deregulation to free more debt capital could also aid the lending climate for investment sales.
• Meanwhile, interest rates have begun to taper. Agency debt on multifamily assets was in the low-5 percent band in early October; across all CRE, it was in the low- to mid-6 percent zone.

Commercial properties offer potentially greater stability. The last trend investors highlight is the probability for more durable returns by commercial properties in relation to other investment classes.

• Some investors view the markets for equities, gold and other options as facing more potential near-term volatility.
• If the commercial real estate transaction market enters a new cycle, as some have suggested, it could lead to increased competition for assets in the coming year.

* As of Oct. 21
Sources: Marcus & Millichap Research Services; Federal Reserve; Moody's Analytics; RealPage, Inc.