Macro-Transaction | Volume & Pricing Summary

Key Highlights

Market Momentum Builds as Rates Ease

U.S. CRE investment accelerated in Q3 2025, marking six straight quarters of growth as improved financing conditions fueled activity. Transaction volume rose nearly 20% YOY and the RCA CPPI All-Property Index climbed 2.6% YOY.

 

Retail and Office Pricing Strengthen

Pricing momentum broadened across sectors, led by retail’s 5.5% annual gain and a resurgence in office values. Both CBD and suburban office prices advanced more than 4% YOY, with cap rates compressing to 6.8% and 7.3%, respectively. Industrial assets remained solid, up 4.0% YOY and 14% above pre-rate-shock levels, while multifamily stability reflected investor confidence amid moderating supply pipelines.

 

Market Leaders Shift Alternatives Mixed

Investment rose in 20 of the top 25 markets, with Dallas holding the top spot and Manhattan edging past Los Angeles for second. Single-asset deals dominated, accounting for 83% of total volume—the highest share since 2009. Alternative sectors were uneven: medical office sales grew 12% YOY, self storage surged 50%, and student housing dipped 23% on fewer portfolio trades, underscoring investors’ preference for resilient, income-producing assets.

 

CRE Market Watch

Signs of Stability Amid Rising Modifications and Evolving Distress

After months of mounting strain across CRE credit markets, recent data suggest a nuanced shift, one that balances modest relief in loan performance against a rising tide of loan modifications and selective distress. Together, these indicators point to a market adapting rather than unraveling, as lenders and borrowers navigate tighter conditions and higher interest rates with greater coordination than in past cycles.

 

Delinquencies Show First Decline in Seven Months

According to Trepp, the CMBS Delinquency Rate ticked down six basis points in September 2025 to 7.23%, marking the first monthly decline since February. The improvement comes after half a year of consistent increases, suggesting early signs of stabilization in certain property types. The total delinquent balance dropped to $43.5 billion from $44.1 billion in August, while the overall CMBS outstanding balance declined slightly to $601.3 billion.

 

All major sectors but retail posted improvements. Retail delinquencies reversed course, climbing 34 basis points to 6.76% after two months of declines, a reminder that consumer-facing properties remain uneven in recovery. Lodging saw the sharpest improvement, falling 73 basis points to 5.81%, its lowest rate since March 2024, while office delinquencies retreated 53 basis points to 11.13%. Multifamily delinquencies eased modestly to 6.59% but remain nearly double year-ago levels. Industrial, the best-performing sector, saw a slight decrease to 0.56%.

 

Loan Modifications Surge 66% as Lenders Take Preventive Action

In parallel with the decline in delinquencies, U.S. banks have sharply increased loan modifications to proactively manage borrower stress. Data from the Federal Reserve Bank of St. Louis show a 66% year-over-year increase in the total value of modified commercial real estate loans, from $16.7 billion in mid-2024 to $27.7 billion as of June 30, 2025.

 

Modifications typically involve extending loan terms, temporarily deferring principal payments, or collecting interest-only payments to alleviate borrower cash flow pressures. The St. Louis Fed noted that “prudent modifications done in a safe and sound manner can serve to mitigate adverse effects on borrowers and their communities,” emphasizing that these adjustments reflect collaboration rather than capitulation.

 

Although the share of modified loans remains historically low relative to total CRE exposure, the sharp quarterly growth underscores a shift in strategy as lenders respond to higher costs of capital, elevated vacancies, and the lingering effects of inflation on operating expenses. Analysts cite the rapid rise in interest rates from a long-standing low-rate environment as a primary driver, along with changing CRE demand patterns and higher maintenance and insurance costs.

 

REO Balances Remain Far Below GFC Peaks

Despite rising loan modifications and spotty delinquency data, today’s level of true distressed assets remains historically modest. According to Q2 2025 data compiled by CredIQ, total real estate owned (REO) balances across U.S. property sectors sit at approximately $4.1 billion, a fraction of the $51 billion peak recorded during the 2008–2012 financial crisis.

 

Core commercial properties account for $2.4 billion of that total, with construction REO at $588 million and multifamily at $231 million. Each figure marks a dramatic improvement compared to the GFC era, when construction REO alone exceeded $18 billion and multifamily topped $2.7 billion.

 

The office sector remains a focal point of distress exemplified by the foreclosure of a 137,731-square-foot property in Basking Ridge, New Jersey. Once fully occupied, its value plummeted from $27.2 million in 2014 to $7.7 million by mid-2025 as occupancy fell below 50%, triggering a loan default and receiver appointment. Still, such cases are outliers in a broadly healthier credit environment.

 

Implications: A Cautiously Optimistic Outlook

The interplay of falling CMBS delinquencies, rising loan modifications, and historically low REO levels paints a picture of a market under strain but not in crisis. Lenders are deploying early intervention tactics, extending loans and managing exposures before defaults materialize, while borrowers benefit from a more collaborative approach to debt management than seen during the Great Financial Crisis.

 

For investors, the current cycle offers fewer distressed buying opportunities but a stronger foundation for long-term stability. Banks’ willingness to modify loans, combined with conservative underwriting and improved asset management, suggests that systemic distress is unlikely even if economic headwinds persist.

 

In short, commercial real estate appears to be entering a phase of controlled adjustment rather than correction where proactive lender behavior, improved asset quality, and tempered leverage collectively cushion the impact of tighter financial conditions.