2025 Mid-Year Review: Capital Markets Optimism Prevails Despite Geopolitical Volatility

July 2025

During the first half of 2025, the commercial real estate capital markets were challenged by a series of global events and the uncertainty that followed. To the surprise of many, capital markets have largely shrugged off headline grabbing events over the last three months. Perhaps even more surprising is the notion that the market for commercial real estate financing is generally functioning more effectively compared to the early weeks of 2025. Financing channels are open, and lenders are engaging with owners on a wide range of loan types. While global events and policy shifts have created the potential for headwinds, market activity has shown that lenders are adjusting effectively and remain interested in extending financing.

Markets Remain Resilient Against a Volatile Global Backdrop

In the face of tariff disruption, lingering uncertainty about trade relations, and ongoing global conflicts, financing activity in the first half of the year exceeded expectations as volume in the first half paced ahead of the same period in 2024. Although there were brief dislocations, such as those seen in the days following the rollout of wide-ranging tariffs in April, markets moved forward without significant disruption to pricing or capital availability. Risk spreads widened temporarily but have since returned to normalized levels, reflecting improved confidence across the industry.

While capital providers are evaluating transactions with an eye toward realistic operating assumptions and downside protection, we have observed that competition among lenders has increased in recent weeks across the industry. As we enter the second half of the year, lenders are actively quoting deals, and a healthy percentage of the deals that progress beyond the preliminary stage are ultimately closing. Self storage, multifamily, and industrial assets continue to see the strongest interest from capital providers. At the same time, lenders are still emphasizing sponsor quality and business plan credibility, and this is particularly true where business plans have been slow to materialize and in markets that show signs of weaker tenant demand.

Capital Markets Experience Rising Optimism

Many lenders have maintained a selective approach to underwriting over the last two years, but the lending environment is showing encouraging signs for qualified borrowers. There is increased activity across conduits, life companies, banks, and debt fund lenders. We have observed that pricing is becoming more competitive. Recent loan quotes for financings with strong fundamentals, high-quality sponsorship, and well-supported business plans have been on the most attractive terms.

A notable bright spot is bridge financing, which continues to attract multiple lender bids in many cases. Terms are improving, and lenders are offering greater structural flexibility. For example, recently, borrowers have been able to achieve cash-neutral outcomes on transitional multifamily assets – something that has been somewhat difficult to achieve over the last 24 months. Additionally, we have seen emerging evidence that non-recourse construction loans for self storage developments are being placed when supported by local fundamentals.

Considerations for the Second Half of 2025

Given the rising level of optimism observed in recent months, it is advisable for owners who are considering financing before year end to engage with a capital expert in the near term. Capital markets conditions are more supportive than they have been in at least two years, but it is difficult to predict how long sentiment will remain positive in the face of underlying risks. Uncertainty in the broader economy, monetary policy, and global events have the potential to dampen enthusiasm in the second half of the year. Borrowers who engage the market early are likely to enjoy more flexibility to evaluate options, adjust plans, and secure favorable terms.

Additionally, partnering with a capital provider in advance of loan maturity gives borrowers time to address any underwriting gaps and optimize their position. Strategies such as improving net operating income, capitalizing on local leasing momentum, or reviewing potential loan structures can strengthen the execution. Delayed preparation may lead to missed opportunities if market conditions tighten, or lender capacity becomes more constrained later in the year.

Final Thoughts

Capital markets have surprised many in the industry over the first half of 2025 by showing resilience and consistency in the face of potentially destabilizing events. While underwriting is still disciplined and sponsorship standards are high, well-prepared borrowers are able to access capital on increasingly competitive terms. Lenders are showing a willingness to compete, especially for seasoned sponsors who can package and present a cohesive business plan. Current market conditions present a constructive environment for financing, but it is unclear how ongoing macroeconomic pressures will impact capital availability and terms later in the year. For this reason, it is advisable that sponsors consider taking advantage of current market conditions while lender appetite is robust.