Steady Monthly Increases in Q1 Phase I ESA Volume Amid Growing Uncertainty
Phase I environmental site assessment (ESA) activity surged in Q1 2025, with the LightBox Phase I ESA Index rising to 86.3—a 9% increase over Q4 and a 14% gain year-over-year. Each month of the quarter outpaced the last, with March volumes ending 3% higher than the same month in 2024.
The rebound reflects renewed engagement from lenders and increased borrower demand for refinancing and acquisitions, following extended price recalibrations and a quieter second half of 2024. Environmental consultants report growing momentum despite continued economic volatility, sharp movements in the 10-year Treasury yield, and the Fed’s commitment to a “higher-for-longer” rate environment.
The key question now: Can this momentum carry into Q2 amid tightening credit conditions and growing macroeconomic uncertainty?
Key Q1 2025 Phase I ESA Developments:
- The LightBox Phase I ESA Activity Index increased to 86.3 in Q1, a 14% uptick from the same time last year and 9% higher than the prior quarter.
- Total U.S. Phase I ESA volume increased to 62,035, a 12% year-over-year improvement from the starting quarter of 2024.
- New York City took the top spot for metros with the strongest growth in Phase I ESA volume in Q1 2025 with a 37% year-over-year surge in demand followed by Atlanta (27%), and Philadelphia (26%).
- Members of the LightBox Market Advisory Council scored the health of the Phase I ESA market as a 70 out of 100— little changed from the prior quarter as concerns about market volatility throw the forecast into question.
LightBox Phase I ESA Index Rallies from a 79.3 Low in Q4
After falling to 79.3 at the end of 2024, the LightBox Phase I ESA Activity Index rebounded sharply in Q1 2025, rising 10 points to 86.3—just shy of Q3 2024’s post-rate-cut high. While debt capital is flowing more freely than in late 2024, underwriting remains cautious, and spreads have widened slightly. These factors could temper activity in the coming months. While Q1’s momentum is encouraging, the market is facing mounting headwinds in the second quarter that could thwart the typical Q1-to-Q2 seasonal upswing, particularly given that uncertainty has already begun to weigh on lender and investor sentiment.
LightBox Phase I ESA Activity Index (base Q1 2021=100)
Market Advisory Council: Caution is the Name of the Game for Q2
As tariff-related campaign pledges transition into formal trade policies, industry sentiment has begun to shift. Insights from the leaders on the LightBox Environmental Due Diligence Market Advisory Council expressed cautious optimism for Q2, tempered by concerns over higher prices, supply chain disruptions, and the risk of an economic slowdown. Members expressed cautious optimism with most (55%) expecting stable Phase I ESA volume in Q2 compared to Q1. Several members noted challenges with timing on environmental due diligence tied to compressed deal timelines.
While momentum was strong in Q1, recent tariff developments have softened sentiment heading into Q2. Interestingly, the latest results are improved from the Q4 survey when 22% of members were expecting lower Phase I ESA volume in the coming quarter versus only 15% in this quarter’s results. Several council members also noted that increasing uncertainty around trade policy, inflation, and economic growth makes forecasting extremely challenging.
“Q1 was very surprising for us. We saw a significant uptick in proposal volume across a couple sectors, most notably commercial and residential, but also saw projects that had been on hold start up. Prospects are good for continued growth in Q2!”
– Adam Meurer, Senior VP, Director of Environmental Services, ECS Mid-Atlantic, LLC
Expectations for Phase I ESA Demand in Q2 2025
For Phase I ESA consultants, the forecast for the rest of 2025 is highly uncertain after a strong start to the year. While the two main obstacles to recovery in the past two years—high interest rates and price uncertainty— were slowly improving, federal policy has now taken center stage. In early 2025, analysts were forecasting only one or two late-year cuts in interest rates and now, following the flurry of market volatility in April, the prevailing consensus among economists and financial markets is that the Fed will implement two to three interest rate cuts by the end of the year. The Fed continues to emphasize a cautious approach, and the exact timing and magnitude will depend on the trajectory of inflation, labor market conditions, and the broader economic impact of trade policies. The next FOMC meeting in May is expected to result in no rate change but any economic fallout from the tariff wars or weakening of the labor market or a spike in inflation could change that expectation.
If interest rates come down faster than expected, borrowers that face large “cash in” refinancings will be able to access new capital on slightly less onerous terms which will be a boost to demand for Phase I ESA projects that support refinancing. Borrowers who took out floating rate loans at the market peak—many of whom are struggling with lower debt service coverage ratios as property values decline—will begin to see at least some moderate relief if rates come down this year. The three interest rate cuts totaling 100 basis points of late 2024 unleashed market momentum that was largely absent for much of last year so if that happens this year, lender-driven Phase I ESA demand could see a welcome boost in the second half of 2025.
For full insights into the latest trends shaping the environmental due diligence sector and what’s ahead for Phase I ESA activity in 2025, read the full report.
The LightBox CRE Market Snapshot Series, Q1 2025 – Focus on Phase I ESA Trends contains more detailed information and metrics on trends in Phase I ESA volume by year, quarter region, metro and for the LightBox25 Index.
For more information about this report series or the data, email Insights@lightboxRE.com
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