The commercial and multifamily real estate finance sector has experienced a significant downturn in market sentiment, with the CRE Finance Council (CREFC) releasing its First-Quarter 2025 (1Q25) Board of Governors (BOG) Sentiment Index survey results. The survey, conducted from March 31 to April 7, 2025, revealed a dramatic shift in market psychology, with the 1Q25 Sentiment Index falling 30.5% to 87.9 from 126.6 in 4Q24.
Market Concerns on the Rise
The sharp decline in the Sentiment Index reflects growing concerns over economic uncertainty triggered by recent trade policies. The survey results show that 80% of respondents expect worse economic conditions over the next 12 months, up from just 12% last quarter. This sentiment is mirrored in the CRE fundamentals, with 50% expecting worsening conditions and only 17% expecting improvement.
- Economic Outlook: Sentiment turned sharply negative, with 80% expecting worse economic conditions over the next 12 months.
- Federal Policy: A decisive shift with 59% expecting negative impacts from government actions.
- Rate Impact: Notably split sentiment with an equal 30% seeing positive and negative impacts.
- CRE Fundamentals: Sharp deterioration with 50% expecting worsening conditions.
- Transaction Activity: Expectations moderated significantly with only 35% expecting increased demand.
- Financing Demand: Expectations dropped dramatically, with 48% expecting more demand.
- Market Liquidity: Considerably more pessimistic with only 15% expecting better conditions.
Geopolitical Tensions and Trade Disputes
The survey revealed that geopolitical tensions and trade disputes dominated risk concerns, with 59% of respondents including these factors among their top risks. Additionally, 67% of respondents expect moderate negative impacts on office sector performance due to federal government lease terminations by the Department of Government Efficiency (DOGE). The impact of tariff policies on construction costs and CRE development is also a major concern, with 60% of post-Liberation Day respondents being either very or extremely concerned.
Cautionary Optimism
Despite the overall negative sentiment, there are pockets of cautious optimism. For example, 80% of respondents expect CMBS issuance volumes to either hold steady or post a moderate decline despite market volatility. This suggests that the industry may be preparing for a potential downturn, but remains hopeful for a recovery.
About CREFC and the BOG Sentiment Index
The CRE Finance Council (CREFC) is the trade association for the commercial real estate finance industry. With over 400 companies and 19,000 individuals as members, CREFC plays a critical role in the U.S. economy by financing office buildings, industrial properties, multifamily housing, retail facilities, hotels, and other types of commercial and multifamily real estate.
- CREFC’s members are senior executives in the commercial real estate finance markets.
- These leaders come from every sector of the commercial real estate lending and mortgage-related debt investing markets.
- The survey, first administered in 2017, consists of nine core questions and additional topical questions.
- Responses to the core questions are equally weighted and summed to create a single index value.
Conclusion
The CRE Finance Council’s First-Quarter 2025 Board of Governors Sentiment Index survey results provide a snapshot of the commercial and multifamily real estate finance sector’s market sentiment. The dramatic shift in market psychology reflects growing concerns over economic uncertainty triggered by recent trade policies. While there are pockets of cautious optimism, the overall sentiment remains negative. As the industry navigates this challenging landscape, it is essential to remain vigilant and adaptable in the face of changing economic policies.
Lisa Pendergast, President and CEO of CREFC, commented: “The CRE finance industry finds itself at a genuine crossroads. The dramatic drop in our Sentiment Index clearly signals concern, but beneath the headline numbers we see pockets of cautious optimism, particularly regarding how lower interest rates might finally break the transaction logjam that has persisted through much of 2024.
