Interest Rates Drop as CRE Lenders Boost Activity

Commercial real estate interest rates have dropped about 50 basis points over the past year, led by agency and life company lenders.
Agencies and life companies are offering rates in the upper-4% range, while banks, CMBS lenders, and debt funds remain slightly higher.
Stronger bank lending and increased private capital are boosting liquidity, supporting a lower-rate environment despite uncertainty around future Fed cuts.

Key Takeaways

CRE Rates Dip as Market Rebalances

Commercial real estate loan rates are down significantly from last year, per a new Marcus & Millichap report. According to Globe St, the decline is driven by recent Fed rate cuts and stronger debt market liquidity. Agency and life company lenders are now quoting rates in the upper-4% range—roughly 50 basis points lower than a year ago.

Fed Moves, Market Reacts

The Fed’s second 25-basis-point cut of 2025 lowered the overnight rate to 3.75%-4%. That move nudged the 10-year Treasury up slightly to 4.1%. In September 2024, lending rates ranged from the low-5% to upper-6% range. That drop sparked a 20% boost in transaction activity in Q4. Whether recent rate changes will do the same remains to be seen.

Bank Lending Rebounds

Many banks are returning to CRE lending after a year of balance-sheet cleanup. Last year, banks focused on reducing risk by boosting deposits and offloading risky loans. With that mostly complete, lending activity is picking up. Banks now account for about 33% of loans for properties over $2.5M—up from 27% last year but still below the pre-2020 average of 40%.

Private Capital Expands

Private debt funds are also stepping in, offering flexible underwriting and non-recourse options. They raised $24B in the first three quarters of 2025, more than double the $11B raised in the same period last year. That surge is helping push borrowing costs down, especially in the bridge loan segment.

Spreads Narrow as Liquidity Improves

With more capital in the market and fewer lenders holding wide spreads, rates continue to decline. The Fed’s current outlook suggests more rate cuts could be coming, which is reinforcing the trend.

Agency and Life Co. debt: upper-4% range
Bank loans: low-5% to low-6% range
CMBS: 5%–7%
Debt funds: 6%–8%.

Outlook: Proceed With Caution

Debt conditions have improved, but further rate cuts are not guaranteed. Market expectations for another Fed cut in December have slipped from over 90% to around 70%. Still, with higher cap rates and lower debt costs, investors may find a more attractive leveraged yield environment.