- August 14, 2025
- Bud Gill
Five Things to Watch in the Commercial Real Estate Market
- Resilience in play: As far as CRE sectors go, data center activity is still healthy, and the overall CRE market is nowhere near the state it was in during the 2008 Financial Crisis and the subsequent Great Recession. CRE investment activity is expected to grow by 10 percent this year, according to CBRE, a multinational real estate company, reaching approximately $437 billion, but still 18 percent below the pre-pandemic annual average.
- Office market challenges: The remote-work trend, initiated during the COVID-19 pandemic which has now morphed into a hybrid schedule, continues to stress the office sector, and as a result, some lenders are off-loading loans at a loss. NAIOP, the Commercial Real Estate Development Association, has suggested that small steps toward an office recovery are underway. Class A, or the highest quality space, is on fire, nationally, while all other classes aren’t, said Lonnie Hendry, chief product officer with Trepp. “That is a very small component of the office market; that is the challenge,” he said.
- CRE deals still getting done: According to Mr. Hendry, CRE deals are getting done in the $20 million to $50 million range, but they haven’t garnered the big headlines that the billion-dollar deals did a few years ago. In addition, grocery-anchor shopping centers, prevalent in big city suburbs like those surrounding Dallas-Fort Worth, Texas, are still outperforming the market, he said. He remains bullish on retail.
- Extend and pretend: Lenders are in an "extend and pretend" phase, extending terms for borrowers who don’t qualify to refinance, hoping for economic stability in the near future. This strategy allows borrowers to continue making payments without immediate refinancing. It worked after the financial crisis, but that was in an environment where the Fed was cutting rates. In this cycle, interest rates aren’t being cut, so borrowers who can’t refinance aren’t gaining any value in their properties. That could become a challenge for the CRE market in the future.
- The high cost of property insurance: The high cost of property insurance remains a significant concern in the CRE industry. Insurance premiums have shown some signs of stabilization this year but rising premiums in recent years have impacted various aspects of the industry from property valuations to the ability to secure financing. Weather-related property damage and rising replacement costs have played a role in driving premium increases in recent years, according to insurer First American. It’s certainly an area to watch.
CRE lenders will need to keep a close pulse on the market as GDP growth slows. The Federal Reserve's June 2025 Summary of Economic Projections revised the GDP growth forecast for 2025 down to a median of 1.4 percent, compared to the previous projection of 1.7 percent. Forrester, a research and advisory firm, forecasts steady growth for the remainder of the year, but suggests growing caution.
I encourage FHLB Dallas members to join our regularly scheduled Capital Markets webinars to keep up to date on the market, including happenings in the CRE sector.
Bud Gill is a first vice president and treasurer at FHLB Dallas.
