Market Summary 9.2.25

Will A Wave of Distressed CRE Come to Market?

The latest Marcus & Millichap analysis shows that while CRE delinquencies are rising, particularly in the office sector, the feared wave of distressed sales has yet to emerge. Overall distress levels remain below historic peaks, and lenders’ willingness to negotiate continues to limit forced liquidations. With distressed transactions accounting for only a small share of market activity, systemic stress has been muted despite elevated debt costs and refinancing challenges.

Implications for CRE investors:

• Heightened office risk: Office delinquencies approach 11%, signaling ongoing structural headwinds, while industrial remains resilient with the lowest distress levels.

• Limited distressed sales activity: Distressed transactions made up only ~2.6% of total trades in H1 2025, suggesting opportunities are narrower than many anticipated.

• Lender flexibility supports stability: Forbearance and workout strategies continue to prevent widespread fire sales, keeping most quality assets off the distressed market.

This stability underscores that distress in CRE is elevated but not at crisis levels. Lenders’ preference for negotiated resolutions over foreclosure has slowed the release of distressed properties, limiting supply and supporting pricing. For investors, this means distressed buying opportunities may be fewer and more selective, with many higher-quality assets unlikely to trade at steep discounts. While office remains the sector to watch for stress, broader CRE fundamentals remain more stable than headline delinquency figures might suggest. Investors should focus on long-term fundamentals, targeting well-located assets with strong tenant demand and financing flexibility rather than waiting for a flood of distressed opportunities that may not materialize.