By: Head of Data Strategy at LightBox, Manus Clancy
To the delight of both equity investors and CRE pros, May, June, and the first half of July defied analysts’ forecasts as inflation remained below expectations. As a result, the broad U.S. stock indexes hit several new all-time highs and CRE sales and financing activity remained strong, even as tariff uncertainty remained.
The outlook for the next few months became a little more uncertain during the second half of July, however, leaving investors wondering if the 10-week party was ending. (We are writing this on August 1st shortly after the July jobs report was released. That print jolted investors, sending both stocks and bond yields sharply lower on Friday.)
The Bigger Picture
We were on record on The CRE Weekly Digest as saying the equity markets were looking “frothy” in early July. Our thesis had been that given the sizable tariff collections pouring into the U.S. Treasury that some combination of higher prices and/or lower corporate profits would have to emerge. Given that stocks were already trading at historically high PEs, it figured that the U.S. equity rally would eventually peter out.
Both effects started showing up starting in mid-July. First, even though the CPI print was in line with analysts’ expectations, it still represented a noticeable month-over-month uptick. Second came earnings reports from Ford and GM which revealed a sizable tariff cost impact to those companies’ quarterly earnings. Over the second half of July, U.S. stocks treaded water as a result.
More unexpected was Friday’s dismal jobs report. Not only did the July jobs wildly missed forecasts, but the May and June numbers were revised sharply lower. One of the big factors in the spring rally in stocks and the Fed’s decision to keep interest rates steady was the strength of the labor market. That went out the window on Friday.
Not only did the equity markets sell off, but the yield on the 10-year Treasury sank 14 basis points to 4.21%…the lowest yield for that bond since late April.
Goodbye to at least some of the froth.
Now that investors have seen the impact on CPI, some corporate earnings, and the labor market, it may take a little time before the froth comes back.
The CRE Market Firing on All Cylinders Despite Macroeconomic Jitters
The CRE market has been a little more nuanced.
Economic activity in the CRE market has picked up considerably over the last three months as the sales activity has been increasing steadily month over month and all four pillars of the lending market— banks, insurance companies, CMBS, and private equity—are functioning on all cylinders.
The impact of the April 2 tariffs barely made a dent in CRE sales and financing. The LightBox CRE Activity Index hit a multi-year high in June and announced sales rose considerably in July. For those that make a living buying, selling, brokering, or originating, the results have been strong.
Less impressive has been CRE property valuations. As interest rates remained ‘higher for longer’ there was certainly little “froth” in CRE values, unlike the U.S. equity markets.
The lack of any real irrational exuberance in terms of property valuations has meant many borrowers are still struggling to avoid the dreaded cash-in refinancing. This has kept distress levels elevated, with a considerable number of loans still stuck in ‘CMBS purgatory.’
Where Does CRE Go from Here?
The silver lining from the Friday jobs report was that huge drop in the 10-year yield.
Should the lower yield hold, it will provide another tailwind to the CRE sales market. It should also make refinancing more achievable for CRE assets that, until recently, were on the cusp.
We remain bullish on CRE for the remainder of 2025. The fact that sales activity did not fall off at all post April 2nd is sign of a confident market. That developers are finding capital for both new and conversion projects is another positive sign. We expect sales and refinancing velocity to continue trending upward in Q3 and Q4.
As for valuations, those too could see improvement should interest rates dip over the next five months.
We are certainly not the only ones feeling bullish on CRE at the moment. The CRE Finance Council’s (CREFC) Second-Quarter 2025 Board of Governors Sentiment Index jumped 28% to 112.3 in Q2. As Principal Asset Management’s Richard Hill pointed out on Linked In, “this is important because there’s a directional correlation between the index and year-over-year changes in unlevered CRE total returns.”
Game on.
For more insights from Manus Clancy, subscribe to LightBox Insights and tune in to the CRE Weekly Digest Podcast, where he, along with Martha Coacher and Dianne Crocker, shares real-time data, market commentary, and key signals to watch across the CRE landscape.
