News Summary

International investors are increasingly reevaluating their investments in U.S. commercial real estate due to concerns over tariffs and trade tensions. This shift in sentiment is expected to affect market liquidity and property prices. Distress levels in the sector have risen significantly, and while there are signs of recovery in certain segments, the construction pipeline is contracting. Investors remain cautious, focusing on risks associated with liquidity, distressed assets, and interest rates.

New York City — August 2025

Global investors are increasingly reevaluating their investments in U.S. commercial real estate (CRE), citing concerns over tariffs and trade policies as primary influences. These shifts threaten to alter the dynamics of the largest CRE market worldwide, which has historically accounted for approximately 38% of global transaction activity over the past decade.

Recent Trends in Cross-Border Investment

Over the past several years, investments originating outside the United States have concentrated in traditional sectors such as industrial warehouses and central business district offices, with a notable focus on gateway markets including New York City, Los Angeles, and Chicago. These investments played a key role in maintaining market liquidity but are now facing a slowdown due to rising uncertainties related to tariffs and geopolitical tensions.

Potential Market Impact of a Capital Pullback

As cross-border capital flow diminishes, experts warn that the liquidity of US properties could weaken, leading to potential declines in property prices. Such a slowdown may also extend to the pricing of new deals and existing assets, impacting overall market stability if the trend persists. A sustained reduction in foreign investment could dampen activity in the sector, particularly in high-value markets and asset classes.

Investor Risk Management and Market Outlook

In response, investors are actively managing risk by reassessing their exposure levels and exploring alternative financing options. Despite the prevailing turbulence, industry analysts predict that property value growth in the U.S. commercial real estate sector remains likely in 2025, supported by domestic capital and strong fundamentals in certain sectors.

Current Market Conditions and Performance Indicators

However, the landscape is not devoid of challenges. Data indicates a 23% rise in distress and delinquencies in U.S. CRE, with distress rates surpassing $116 billion by the end of the first quarter of 2025. This increase signals financial stress among borrowers and lenders, fueling concerns about sector stability.

Economic Indicators and Real Estate Activity

Economically, the U.S. experienced a 1.3% contraction in gross domestic product (GDP) during Q1 2025. Contributing factors included increased imports prior to tariff hikes and a decline in government spending. Meanwhile, the unemployment rate edged up by 10 basis points to 4.2%, although the economy added over 520,000 jobs in early 2025, indicating ongoing employment strength.

Commercial Real Estate Sector Developments

Leasing and Occupancy Trends

Office leasing activity showed signs of recovery, with an 18% increase quarter-over-quarter in Q1 2025. Major markets are witnessing renewed interest as companies start renewing leases ahead of renewal deadlines. Conversely, retail sectors are experiencing increased availability rates, which rose to 4.8% during the same period, reflecting declining absorption in traditional retail spaces.

Construction and Development Activity

The construction pipeline is contracting, primarily driven by rising costs and supply chain issues. Retail development completions hit their lowest levels in over ten years, reducing new supply and potentially supporting existing asset values. Meanwhile, preparation for future growth remains cautious as developers face financial and logistical headwinds.

Financing and Lending Dynamics

With an estimated $1 trillion of CRE loans maturing by the end of 2026, private credit providers are poised to play a greater role in refinancing and new lending activities. Borrowers are reevaluating their strategies amid higher interest rates, which pose challenges for debt servicing and refinancing. Despite these challenges, both traditional banks and private lenders are actively competing, maintaining a robust lending environment for new investment and refinancing deals.

Investment Flows and Market Confidence

In April 2025, a notable influx of capital into the U.S. CRE sector was observed, with investment volumes forecasted to grow by up to 8% this year. While market volatility driven by factors such as budget deficits and geopolitical uncertainty remains, investor interest continues to motivate activity across various asset classes, especially into multifamily and industrial properties.

Market Risks and Future Outlook

The bond markets reflect ongoing concerns; volatility stemming from fiscal deficits and international trade tensions introduces additional risks. Nonetheless, the overall outlook for commercial real estate remains cautiously optimistic, with expectations that investments will sustain despite external pressures. The evolving landscape underscores the importance of strategic risk management and diversification for market participants as they navigate the complex environment of tariffs, currency fluctuations, and interest rate movements.

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Global Investors Reassess U.S. Commercial Real Estate