Market SUmmary 9.22.25

The Fed Cut Rates — Now What?

The Federal Reserve has initiated its first rate cut of the cycle, lowering the federal funds rate to a 4.00% lower bound. The move reflects growing confidence that inflationary pressures are contained enough to begin easing monetary policy, while also acknowledging signs of softer economic momentum. In response, short-term borrowing costs have already begun to fall, and investors are closely watching the 10-Year Treasury yield to see if long-term financing rates follow, as this will determine the depth of relief across commercial real estate sectors.

However, the impact on property values is not straightforward. While lower rates reduce debt service burdens, cap rates are influenced more by transaction activity, liquidity, and investor sentiment than by Fed policy alone. In recent years, cap rates expanded by 80 to 130 basis points even as the Fed shifted policy, highlighting that pricing depends on whether buyers and sellers can align expectations. Until bid-ask spreads narrow, transaction velocity may remain constrained despite more favorable financing conditions.

Looking forward, easing interest rates and a significant pipeline of debt maturities—estimated at nearly $1 trillion in 2025—could set the stage for renewed deal activity. Investors with available capital may look to deploy into multifamily and industrial assets first, while office and select retail segments could continue to lag given structural headwinds. If long-term yields stabilize and credit spreads tighten, the market could see cap rate compression in stronger segments, helping restart price discovery.

For investors, this environment offers a tactical opportunity. The current transition period may provide a window to secure debt at improved terms before competition drives values higher. Targeting resilient markets and assets with durable demand drivers will be critical, as liquidity returns unevenly across sectors. Those who move early could benefit from both near-term financing advantages and long-term appreciation as capital flows back into commercial real estate.