Headlines during the second quarter of 2025 focused on tariff uncertainty leading to economic volatility. However, at the same time, the CBRE Lending Momentum Index rose by 45% year-over-year as financing for commercial real estate projects increased.
- Total investment for the quarter stood at $96.9 billion, though the cross-border flow decreased, reported at $3.9 billion. Additionally:
- Alternative lenders accounted for 34% of loan closings by non-agency lenders (an increase of 32% year-over-year)
- CMBS lenders were active with a 19% share of closed non-agency loans (up 9% from the year before)
- Banks accounted for 24% of loan closings by non-agency lenders; while this was a 29% year-over-year reduction, origination volume increased by 70%
- Life companies had a 23% share of non-agency loan volume, representing a 29% decrease from the year before
“While early Q2 faced uncertainty due to tariffs and economic factors, activity improved as financial markets assessed trade negotiations,” CBRE Associate Director, Capital Research, Jaeyoung Kim told ConnectCRE.
She explained that credit spreads tightened to more balanced levels, which helped boost origination across all lender types. “As policy clarity improved and market participants adapted to economic conditions, all lender types were active,” Kim added. “Notably, private credit lenders and CMBS experience the highest uptick in volumes.”
Kim also noted that expectations shifted with changing policy stances, meaning things turned out better than anticipated in early April 2025. However, “with the benefit of market observations, we weren’t particularly surprised at where we ended up,” she said.
Other notable report highlights included the following:
- Private investors made up 62% of Q2 investment volume (up 60% year-over-year), while institutional investment volume fell by 39%, primarily due to the 2024 AIR Communities transaction
- The annualized NCREIF Property Index returns rose to 4.3% in Q2; retail had the highest annualized total return at 7.6%, while multifamily had a return of 5.0%
- The average spread for multifamily mortgages dropped by 22 basis points year-over-year to 150 basis points.
- Underwriting was less conservative in Q2, as average LTV ratios rose to 63.3% and debt service coverage ratios fell to 1.34
Kim indicated that while Q2 experienced fluctuations, market participants were committed to capital deployments. Additionally, the CBRE team is forecasting continued momentum supported by market adaptability and robust pipelines.
“Although there are economic and policy-related headwinds, these challenges are unlikely to derail capital deployment or lending/investment activity,” Kim commented. “With expected Federal Reserve rate cuts and a stable long-end of the curve, borrowing rates should remain supportive of deal activity for the rest of this year.”
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