REAL ESTATE NEWS

Borrower demand is returning in the second half of 2025, and it will help continue to catalyze a recovery in capital market pipelines. Over the last three years, commercial real estate investment has fallen sharply alongside the rapid increase in interest rates and economic volatility. The debt markets have floundered in the same period as a result of the waning investment activity.

But, in the last two quarters, investment activity has returned, up 13% year-over-year in the second and third quarters. As a result, lending velocity has also improved, according to Clark Finney, first VP and director of capital markets at Matthews. Over the next 18 months, Finney expects the capital market environment will continue to improve as interest rates stabilize.

Interest Rates Fuel Investor Return
No one wants to place capital in a period of chaos,” he says. “Today, we finally have a clearer sense of direction—especially compared to the fog surrounding 2025 at this time last year. Investors can now make decisions and set targets for 2026 with far greater confidence.

The Fed is cutting rates, markets have absorbed tariff impacts, and inflation and economic data suggest the 2025 economy has held up well. There seem to be fewer monsters lurking in the fog of 2026—though special servicing has reached an all-time high.

It's an important distinction because while rates will likely decrease more from where they are today, Finney doesn’t expect a return to a pandemic-era rate environment. However, they probably don’t need to go that low to fuel demand. If the 10-year US Treasury could settle in the 4% range, and that, he says, “will put a lot of gas on the market.”

The return of borrower demand will open doors and opportunity in the capital markets. “As lenders get comfortable operating in a more stable environment, investors are going to have more debt options and see more aggressive terms,” adds Finney.

Lenders Favor Multifamily
An economically stabilized, 2000-plus vintage multifamily asset in a major market is going to be the easier deals to finance for the foreseeable future, according to Finney. That’s the deal every lender wants.

“If you have that, you shouldn’t have any problem financing it because it goes to the agencies,” he adds. Beyond multifamily, Finney sees strong demand for multi-tenant industrial and self-storage, both of which have diversified cash-flow, like multifamily. He also expects office and dark retail values to recover somewhat as investors notice the value of their real estate and attractive basis.

The Market Continues to Improve
This is only the start of what Finney expects to be a meaningful upswing. He maintains a positive 18-month outlook, anticipating steady improvements roughly every six months. “We’re going to continue moving into a better position than we are today,” he says. “And eventually, we’ll reach an environment that truly resembles the recovery this industry has been waiting for.”

His advice to investors: “Sometimes you don’t need to overcomplicate it. I’ve had the opportunity to work with incredibly successful, seasoned operators who don’t fixate on every basis point. They focus on strategically placing and removing pieces on the board as they navigate evolving market cycles

For more insights and thought leadership from Matthews, click here.

Source: GlobeSt/ALM