CRE Finance Sentiment Dives Amid Rising Tariff Risks

CRE finance sentiment dropped sharply in Q1 as tariffs and inflation raise fears of stagflation and delay interest rate relief.

May 28, 2025

Jordan B.

CRE finance sentiment index fell 30.5% in Q1, the steepest drop since the onset of the COVID-19 pandemic.
Tariff-driven inflation is delaying Federal Reserve rate cuts, heightening fears of stagflation—a combination of high inflation, slow growth, and rising unemployment.
Geopolitical tensions and trade policy emerged as the top concern, cited by 59% of CRE Finance Council survey respondents.
Despite negative sentiment, transaction activity remains steady, with many investors betting on distressed assets and office-to-residential conversions.

Key Takeaways

CRE Finance Outlook Takes a Hit

According to Bisnow, CRE finance sentiment plunged in the first quarter, reflecting growing concern across the commercial real estate sector. The CRE Finance Council’s index saw a 30.5% decline—its worst drop since early 2020. Investors and lenders now worry about stagflation, where high inflation, low growth, and rising unemployment converge.

Lisa Pendergast, CEO of the CRE Finance Council, warned that current conditions are weighing heavily on the CRE finance outlook. “To me, that’s the worst of all worlds, especially in the mortgage market,” she said.

Tariffs Keep Inflation High

Tariffs have become a major obstacle to rate cuts. They raise prices, which slows consumer spending and keeps inflation elevated. These conditions reduce the chance of the Federal Reserve easing rates anytime soon.

Although the Trump administration lowered some tariffs—like reducing a 145% duty on Chinese imports to 30%—uncertainty remains. Just last week, Trump threatened new 25% tariffs on foreign-made iPhones.

“The uncertainty tariffs create is one of the biggest concerns for anyone involved in lending or investing,” Pendergast said.

Fed Holds Steady Amid Policy Confusion

In May, the Federal Reserve kept the benchmark interest rate between 4.25% and 4.5%. Fed Chair Jerome Powell admitted that tariff policy has made rate guidance “not at all clear.”

Pendergast said the industry still hopes for up to three 25-basis-point cuts in 2025. But she cautioned that rate cuts depend on policy stability and lower inflation—both still out of reach.

Transaction Activity Persists

Despite falling CRE finance sentiment, many investors remain active in the market. According to the CREFC survey, 35% of respondents expect deal volume to grow this year, while 45% expect it to stay the same. Only 20% predict a drop.

Investors continue to chase distressed opportunities, and lenders are extending more office loans. Office-to-residential conversions also add momentum.

Pendergast noted, “This market has reacted in a more constructive way than we expected. There’s more activity than we thought possible in this environment.”

Why It Matters

Interest rates remain the key concern. High rates make refinancing harder and stall new loans. Unless inflation eases and trade tensions cool, rate cuts may stay off the table.

Pendergast summed it up: “This is an issue of rates. Cap rates, mortgage rates, benchmark rates. When those move, that’s your sign things are improving.”

What’s Next

CRE finance professionals will continue to track inflation, interest rates, and policy changes closely. Until stability returns, sentiment may stay low—even as investors find ways to stay active.