High rates, policy uncertainty lower commercial real estate growth expectations

by: Alex Thomas , Alexander Shaban

Key takeaways

• For the first time in our survey, commercial real estate (CRE) investor optimism softened quarter over quarter (QOQ) amid expectations for higher-for-longer rates and policy uncertainty.
• Overall market conditions declined or remained flat QOQ in every sector except Office. Investors remain most bullish on the Multifamily and Industrial sectors, though investor sentiment in both sectors is worsening for the first time in our survey. ?
• 42% of all CRE investors cite?interest rates / access to capital?as the biggest obstacle to their sector in 2025, followed by?inflation / rising operating costs. Many investors also noted concerns regarding shifts in trade policy, federal employment, and immigration.?

The?Burns + CRE Daily Fear and Greed Index, created in collaboration with?CRE Daily, reflects sentiment across CRE sectors, including multifamily, industrial, retail, and office. This survey provides insight into whether values and development will likely increase or decrease and is one of the factors we consider when forecasting multifamily construction.

The 1Q25 survey findings are available for download.

The JBREC + CRE Daily Fear and Greed Index remained flat QOQ at 56 in 1Q25. Investor optimism softened QOQ amid expectations for higher-for-longer rates and policy uncertainty—the first QOQ decline in our survey’s history.

Overall market conditions declined or remained flat in 1Q25 from 4Q24 in every sector except Office, per our sector-level Fear and Greed Index.

• Office remains weak but is showing signs of upward momentum, likely driven by opportunistic investors who believe the sector has bottomed out.
• Investors remain most bullish on the Industrial and Multifamily sectors, though investor sentiment in both sectors is worsening for the first time in our survey.

Index values below 45 indicate a contracting CRE market, while those above 55 suggest expansion. Values between 45 and 55 reflect a market that is balanced between buyers and sellers.

Higher-for-longer rates will keep CRE investment muted in 2025

42% of all CRE investors cite?interest rates / access to capital?as the biggest obstacle to their sector in 2025, followed by?inflation / rising operating costs. Investors note?capital costs?as the biggest obstacle to their sector in 2025 for every sector except Office, where?weak tenant demand?tops the list of concerns.

Between our 4Q24 and 1Q25 surveys, the Federal Reserve emphasized more near-term risk to inflation relative to the labor market. As a result, the Fed scaled back its rate cut outlook for 2025.

30% of CRE investors told us that capital was harder to access in 1Q25 vs. 4Q24, compared to just 11% who report easier access to capital. Access to capital had been slowly improving throughout 2024, but CRE investors broadly reported little to no change in their access to capital in 1Q25.

CRE investors are wary of the potential impact of federal policy shifts

Despite only 8% of CRE investors citing policy risk as the biggest obstacle to CRE in 2025, many investors note policy risk in their commentary. As one CRE investor summarizes, “Uncertain policy and political action are weighing on our pipeline. Investors don’t know how to price in the current uncertainty.”

Some CRE investors call out the potential impact of increased immigration enforcement, particularly on occupancy in markets like Florida and Texas.

• “It will be interesting to see in markets like FL and TX if immigration policy changes affect occupancy. The same goes for development in those markets and resource/construction crew strain placed on the market.”

Several other CRE investors noted their concern about the potential negative impact of tariffs and federal layoffs on the economy.

• “The Department of Government Efficiency’s (DOGE) impacts on the U.S. Department of Housing and Urban Development (HUD) and Treasury may push our fragile economy into a deep recession.”

The majority of CRE investors are still on pause

The share of CRE investors in wait-and-see mode has remained roughly unchanged over the last 5 quarters. 64% of CRE investors did not change their exposure to CRE in 1Q25.

So far, uncertainty is not enough for CRE investors to change their return targets. 69% of CRE investors are keeping their unlevered internal rate of return (IRR) targets?about the same?in 2025 relative to 2024.

• Unlevered IRR targets are broadly similar across asset classes, averaging 9% to 10%.
• Office investors show the greatest divergence in IRR targets among CRE investors, likely reflecting a bifurcation in return expectations between higher and lower-quality assets.

Investor optimism fell for the first time in our survey

The share of investors who expect to increase their investment over the next 6 months fell QOQ in 3 out of 4 sectors (all but Office) due to higher rate expectations and policy uncertainty.

The Expected CRE Investment Strategy index fell 2 points to 66 in 1Q25 from 68 in 4Q24. This is the first time in our survey that investors have indicated less optimism about CRE over the next 6 months.

• The share of investors who expect to increase their CRE exposure over the next 6 months fell most within the Multifamily sector. Investors also lowered their expectations for multifamily asset values to just?+2%?growth over the next 6 months, down from?+3%?in 4Q24.

We are continuing to monitor real estate investor sentiment across all the sectors we track as the macroeconomic and policy environment shift. To receive an overview of our entire suite of coverage on commercial, rental, and for-sale real estate, please contact us.

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