Real Estate
U.S. Real Estate: Appreciating Income in a Shifting Economy
CRE valuations held steady in the second quarter, though transaction activity was subdued amid economic uncertainty and periods of market volatility following “Liberation Day”.
Executive Summary
ECONOMY
- Despite policy volatility and tariff-related risks, the U.S. economy remained resilient in Q2 2025, supported by low unemployment, solid household and business balance sheets, and productivity gains.
- The “One Big Beautiful Bill Act” introduced modest fiscal stimulus but raised federal deficit concerns. Trade policy around tariffs created headwinds for business investment and CRE construction starts.
- The Fed maintained a cautious stance on rate cuts, despite political pressure. Markets remain sensitive to U.S. Treasury demand, with roughly two 25 bps rate cuts expected by year-end.
PROPERTY MARKETS
- Construction activity has slowed meaningfully across most sectors, creating a more favorable supply backdrop. This trend is notable in multifamily and industrial, where elevated costs and tighter financing conditions have curtailed new starts, reinforcing fundamentals for existing assets.
- CRE valuations held steady in Q2 2025 following a basis reset in recent years, though transaction activity was limited by economic uncertainty and periods of market volatility following “Liberation Day.”
- Debt markets have improved, with spreads modestly tightening across property sectors. However, underwriting remained conservative, particularly for office and retail assets, as lenders were cautious amid valuation and economic uncertainty.
