R
eal estate dealmakers are optimistic about 2025, expecting a busier year after two years of high interest rates and uncertainty that choked commercial real estate markets. In 2024, lenders struggled to underwrite new loans and refinance expiring ones, leading to disputes over asset values between buyers and sellers. However, as the year comes to a close, lenders are more willing to lend, with credit conditions improving for most types of properties except office space.

    Short-term interest rates have begun to fall, and long-term rates are expected to stabilize near their current level. Lenders have compressed spreads on interest rates to record lows, making money available again. The U.S. economy remains strong, with low inflation and a growing gross domestic product. This has led to a consensus that prices for commercial real estate hit bottom in the first quarter of 2024.

    Commercial mortgage-backed securities lenders are originating more new loans, helping banks clear old debt from their balance sheets. Bank stock prices have nearly doubled since January 2024, with representatives of major banks stating they're open for business on the right transactions. The U.S. economy's strength is helping some overbuilt real estate markets recover.

    Despite the improving conditions, commercial real estate investors closed relatively few deals in 2024, with a 13% decrease in sales and joint ventures compared to the same period last year. Deal volume remains low due to the gap between sellers' asking prices and buyers' offers. Large deals have increased, but overall transaction volume hasn't.

    Interest rate cuts by the Federal Reserve are expected to continue into 2025, with some predicting more rate cuts in the coming months. Long-term interest rates seem likely to stabilize near their current level, with bond investors betting on a yield of around 4.5% over the next two years. Real estate investors have grown accustomed to interest rates at this level and expect it to be the new normal.

    However, some attendees expressed concerns about proposed federal policies that could increase inflation and interest rates. Despite these worries, most dealmakers remain optimistic about the opportunities ahead, particularly in data centers and other sectors.