An aerial view of New York City showcasing key commercial real estate assets.
International investors are increasingly reevaluating their investments in U.S. commercial real estate due to concerns over tariffs and trade tensions. This shift in sentiment is expected to affect market liquidity and property prices. Distress levels in the sector have risen significantly, and while there are signs of recovery in certain segments, the construction pipeline is contracting. Investors remain cautious, focusing on risks associated with liquidity, distressed assets, and interest rates.
Global investors are increasingly reassessing their exposure to U.S. commercial real estate (CRE) assets, mainly driven by concerns over ongoing tariffs and trade policies. This shift is impacting the flow of cross-border capital into U.S. property markets, which have historically attracted significant foreign investment over the past decade.
Throughout 2015 to 2024, foreign investment in U.S. CRE primarily targeted traditional sectors such as industrial warehouses and central business district offices in gateway cities like New York City. These investments formed a substantial portion of the overall market, with the U.S. accounting for approximately 38% of global transaction activity over the last ten years. However, the current environment of trade tensions and tariffs is prompting international investors to reconsider their exposure, leading to a potential prolonged pullback of cross-border capital.
If this trend continues, it could significantly affect property liquidity and pricing dynamics within the country. A decline in foreign investment has the potential to reduce transaction volumes and slow down property price appreciation, impacting overall market stability. Investors and developers are now managing increased risk concerns, especially regarding liquidity and valuation impacts.
Despite these challenges, market forecasts maintain a high likelihood of property value growth in the commercial real estate sector for 2025. This optimistic outlook persists even amid volatility caused by tariff policy uncertainties, with some sectors showing resilience and continued interest from investors.
One notable trend is the increase in distress and delinquencies within the U.S. CRE market. As of the end of the first quarter of 2025, distress-related figures have risen by 23%, totaling over $116 billion. This escalation underscores mounting financial pressures, partly due to the contraction in lending and rising borrowing costs.
The U.S. economy experienced a slight contraction of 1.3% in gross domestic product (GDP) during Q1 2025. This decline was driven by increased imports ahead of tariff impositions and a reduction in government spending. Meanwhile, the unemployment rate edged up by 10 basis points to 4.2%. Despite this, employment remains robust with over 520,000 jobs added in early 2025.
Office leasing activities showed signs of recovery, with leasing volume increase by 18% quarter-over-quarter in Q1 2025. Major urban markets are witnessing firms renewing leases earlier than usual, signaling confidence in market stability. Conversely, the retail sector faces challenges, with availability rates rising to 4.8% due to negative absorption trends, particularly in key retail areas.
The construction pipeline for commercial real estate is shrinking, primarily because of rising costs and supply chain issues. Retail property completions have fallen to their lowest levels in over ten years, reflecting cautious development activity amidst economic uncertainties.
As approximately $1 trillion in CRE loans are expected to mature by the end of 2026, private credit is anticipated to become increasingly important for financing. Rising interest rates are complicating refinancing strategies for borrowers, prompting a reassessment of borrowing plans. Both traditional and private lenders remain active, resulting in a competitive lending environment.
Despite the broader concerns, investment flows are still favoring multifamily and industrial properties. In April 2025, there was a noticeable surge in capital entering commercial real estate, with estimates suggesting total investment volume could increase by as much as 8% this year. Conversely, investor interest in retail and office assets appears to be waning or shifting, reflecting sector-specific sentiment changes.
The bond market has shown some sensitivity to volatility caused by factors such as budget deficits and macroeconomic uncertainty. While these conditions introduce risks, overall investor motivation remains steady, with both conventional and private lenders actively seeking new opportunities and refinancing options, thereby maintaining liquidity in the market.
In summary, the U.S. commercial real estate sector is navigating a period of measured adjustment amid global uncertainties and domestic economic pressures. While some sectors face headwinds due to declining foreign capital and rising costs, overall market prospects for 2025 remain cautiously optimistic, supported by ongoing investment activity and sector-specific resilience.
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