Many CRE companies made strides through the first quarter of 2025, but were slowed in April
The commercial real estate market rolled into 2025 with some momentum, with some companies seeing good deal volumes through the first quarter of the new year. But tariffs and a global trade war have slowed that progress and darkened the outlook for the months ahead.
Alex Horn (pictured top), managing partner of BridgeInvest, said activity and prospects were strong in late 2024 and into 2025, before things changed in early April.
That was because of the Trump administration’s move to launch huge tariffs against global trading partners – some of which have been paused and reduced, while others against countries like China have been increased.
Because tariffs have helped keep interest rates elevated, they gave a lot of buyers and sellers in the commercial market pause to see what the fallout is going to be.
“The stickiness of the tariff conversation, I think, put a pause or slow down to the increasing transaction volume we saw from last year,” Horn told Mortgage Professional America. “All of a sudden, there’s retrenchment from sellers. Buyers are nervous again about potential changes to the market.”
While the tariffs have direct impacts on affordability, inflation, and supplies for new construction projects, Horn is also concerned about their secondary effects.
“Regardless of what happens with the tariffs, the second and third order consequences are that it affects consumer confidence,” Horn said. “It affects business confidence. I think corporations are going to be a little less excited about leasing that extra space or putting their neck on the line for a growing market or a new business line that they want to pursue.”
The CRE market had momentum pre-tariffs
The tariff war was a blow to a space that looked like it could be set for a rebound at the turn of the year.
“The end of the year was very active for us, and the first quarter of 2025 was extremely active for us,” Horn said. “When you look at our last 12 months, we closed just under $700 million of new loan origination, which is a substantial uptick from the previous 12 months.”
Horn believes many people were waiting for the right opportunity to jump back into the markets, but rate increases make it difficult. Once the Fed began cutting rates, buyers and sellers got back to work.
“For a long time, since the Fed increased rates, there was a desire from owners of real estate to hold their real estate with the idea that rates were going to get cut,” he said. “The desire from sellers was to hold as long as possible, with the idea of better prospects happening in the future. Buyers were still looking for the right opportunities.”
The holding pattern caused the market activity to bottom out in 2023, according to Horn.
“That led to a historically low transaction volume,” he said. “I believe 2023 was the lowest transaction volume that we’ve had in this country in commercial real estate since a decade ago.”
Prior to the Fed rate cut, Horn saw the market beginning to thaw as sellers decided they could no longer way to put their property on the market, and buyers were ready to jump at a mortgage, even if it wasn’t the terms they were hoping for.
“Sellers started to say, ‘At some point, I need to sell,’” Horn said. “They wanted to exit their opportunity. And buyers started to say, ‘Maybe the returns I was expecting because of higher interest rates aren’t going to be that high. So, they started to be more realistic with prices.”
The market thawing started to speed up once the Fed decided to cut rates. Then, deals started to roll in.
“In the second half of 2024, you started seeing more transaction volume start to occur,” Horn said. “And then certainly the Fed cutting rates last year helped accelerate that. We saw an uptick in transaction volume through the third and fourth quarter of last year, and even through the first quarter of this year.
“The first quarter this year probably was our strongest quarter in our history.”
Uncertainty causing buyers and sellers to pause
Deals slowing down, Horn believes, will gum up the economy as a whole because many offices and warehouses will feel the effects of limited or more expensive imports.
“There is a potential for a slower economy and the potential for slowing rents and slower rent growth,” Horn said. “Occupancy numbers are also slowing down, particularly for more business-related aspects like industrial, office, and even some retail.”
The uncertainty of what will happen to the economy as the tariffs' effects continue to unfold is causing unease in the entire mortgage market. Some experts believe CRE mortgage delinquencies could become a big problem in the months ahead.
As Trump-era tariffs disrupt markets, Curinos’ Rich Martin sees a troubling trend—fear and uncertainty replacing confidence in housing. He urges brokers to seize local opportunities. https://t.co/APxQIOp6js
— Mortgage Professional America Magazine (@MPAMagazineUS) April 29, 2025
For now, Horn believes the unease will cause a wait-and-see attitude from buyers and sellers.
“We saw for the last 12 months an acceleration of deal volumes because of what was happening in the market,” Horn said. “Tariff conversations definitely has slowed that down. Regardless of what happens, we’re going to see a slowdown in the economy, because people are going to be nervous, both domestic and foreign, about what repercussions could mean down the road.”
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