The Halfway Point of the Year: What’s Happening with the Economy and CRE?

At the start of 2025, “CRE was gaining momentum with several green shoots emerging,” especially in the capital markets, according to Cushman & Wakefield’s “Midpoint 2025 U.S. & CRE Outlook.”

What a difference six months makes. A shift in economic policies (particularly related to tariff uncertainty) combined with massive uncertainty, “our base calls for short-term stagflation for the remainder of 2025, meaning slower economic growth and accelerating inflation,” the report said. In fact, stagflation signs are already in existence, in light of layoff announcements, higher inflation and prices, fewer goods and increasing unemployment.

The Federal Reserve echoed the stagflation sentiment. On June 18, following its Federal Open Market Committee meeting, the Federal Reserve said it would keep interest rates at their current level, in the 4.25% to 4.5% range. The reason for this is continued uncertainty regarding President Donald Trump’s tariff impact on the U.S. economy.

Earlier, the Fed expressed concerns, outlining potential stagflation risk to the economy based on both higher unemployment projections and trade policies.

What will this mean for commercial real estate? The Cushman & Wakefield analysts suggest that “demand conditions for most property subtypes and most markets will remain resilient.” Furthermore, tightening construction pipelines could lead to lower vacancy rates.

From the capital standpoint, the report forecast that the 10-year Treasury yield will fluctuate in the low-to-mid 4% range for the rest of the year. Furthermore, cap rates could increase “as sellers become more motivated and willing to meet the market and as buyers are enticed by the reset in values,” the Cushman & Wakefield analysts observed, adding that most pricing resets have already taken place.

Furthermore, the general nature of real estate investments could be helpful. “During periods of uncertainty, real assets are favored and CRE stands to benefit from this dynamic in the immediate term,” the report said.