- Transaction volumes climbed to $98B in Q1 2025, an 11.3% year-over-year increase, driven largely by multifamily and industrial property activity.
- Multifamily transactions surged 35.5%, while industrial and hotel sectors also saw notable gains; office transactions fell 17.8%.
- Property prices posted the first annual increase since 2022, led by multifamily and industrial sectors, though values remain below 2021 peaks.
- Cap rates returned to post-GFC levels, with office highest at 7.7% and industrial lowest at 6.4%.
A Strong Start
Wells Fargo’s Q1 2025 commercial real estate report reveals a CRE market showing renewed vigor, per Globe St. With interest rates down since late 2024 and capital more accessible, total CRE transactions climbed to $98B—a robust 11.3% jump over the same period last year.
Multifamily Leads the Way
Multifamily was the clear frontrunner, accounting for a 35.5% rise in transaction activity. The sector also posted a solid 8.1% vacancy rate, modest 1.2% rent growth, and balanced net absorption (128,300 units) against completions (125,900 units).
Industrial properties followed, with a 24.4% increase in deals and 2.5% rent growth—the highest among all asset classes—despite a vacancy rate of 6.9%. Hotels also rebounded, with a 27.1% rise in transactions.
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Office Still Under Pressure
Office assets continue to lag. Transaction volume dropped nearly 18%, and while net absorption was positive at 7.7MSF, the sector still faces elevated vacancy (13.9%) and high CMBS delinquency (12.7%).
Price Stability Returns
After several quarters of declines, prices in the CRE market finally edged up 0.6% year-over-year. Multifamily led with a property price index of 200.7 (2006 baseline), followed by industrial at 189.3. Office property values remain challenged, particularly in CBDs, where the index stands at 77.7.
Cap Rates Normalize
Cap rates have returned to levels last seen in the years following the Global Financial Crisis. Multifamily stood at 5.7%, industrial at 6.4%, retail at 7.2%, and office peaked at 7.7%, reflecting investor caution.
Improved Lending Environment
Banks showed a more favorable lending posture in Q1. Only 1.6% reported tightening standards for multifamily loans, while 12.7% eased them. Tightening persisted in nonresidential and construction lending but at lower levels than last year.
Outlook
Wells Fargo analysts note growing optimism across most sectors, especially as price stability and improved financing conditions take hold. Still, office assets remain a drag on the broader recovery, and sector-specific challenges persist.
Stakeholders in the CRE market will be watching closely to see if this momentum continues into the second quarter.
