Market Summary 7.28.25

Are CRE Fundamentals Set to Strengthen—and What Should Investors Watch for Next?

The commercial real estate (CRE) market isn’t out of the woods—but it is entering a new phase. According to Marcus & Millichap’s latest research, improving fundamentals and a sharp pullback in new development are laying the groundwork for a more favorable investment environment heading into late 2025. For investors, the opportunity lies not just in what’s happening now—but in what’s no longer happening: namely, widespread overbuilding.

With construction levels falling to decade lows across most asset classes, the supply pipeline is thinning just as demand begins to recover. That’s especially true in multifamily, industrial, and select segments of retail, where limited new inventory will enhance pricing power for owners and operators in the near to mid term. Meanwhile, capital markets remain tight, but cap rates have reset faster than fundamentals—creating a rare mismatch that strategic buyers can capitalize on.

Encouragingly, macro sentiment is turning a corner. Consumer confidence and small business optimism have both reached their highest levels since the pandemic, which bodes well for retail leasing, job growth, and household formation. These are the building blocks of stabilized occupancy—and with fewer new assets entering the market, well-located properties are poised to benefit disproportionately.

Investors should pay close attention to how this supply-demand imbalance plays out. Even in markets with elevated vacancy, tightening construction pipelines and steady demand could lead to faster-than-expected stabilization—especially for value-add opportunities. The bid-ask gap, while still present, is starting to close as underwriting adjusts to better-than-feared performance.

Looking forward, CRE’s next phase may not be defined by explosive growth—but by smart capital deployment in underbuilt markets. Investors who move early—before the data fully confirms the rebound—could lock in pricing advantages that won’t be available once sentiment fully shifts.

For groups focused on yield and long-term upside, this phase of the cycle may offer the most favorable conditions we’ve seen since 2021. Just don’t expect a rising tide to lift all boats—focus will matter more than ever.