News Summary

International investors are increasingly reevaluating their investments in U.S. commercial real estate due to concerns over tariffs and trade tensions. This shift in sentiment is expected to affect market liquidity and property prices. Distress levels in the sector have risen significantly, and while there are signs of recovery in certain segments, the construction pipeline is contracting. Investors remain cautious, focusing on risks associated with liquidity, distressed assets, and interest rates.

New York City – April 27, 2025

Global investors are increasingly reconsidering their exposure to U.S. commercial real estate (CRE) amid rising concerns over tariff policies and potential economic impacts. This cautious shift is driven by fears that additional trade tensions could lead to decreased liquidity, lower property prices, and a slowdown in investment activity in one of the world’s largest CRE markets.

Shift in International Investment Strategies

Over the past decade, the U.S. has accounted for approximately 38% of global CRE transaction activity, making it a primary destination for cross-border investments. Historically, foreign investors have shown strong interest in traditional sectors such as industrial warehouses and central business district offices in key gateway markets, especially in New York City.

However, in recent months, there has been a noticeable pullback in cross-border capital flows. This retreat is primarily linked to tariff-related concerns and uncertainties about future trade policies, which are prompting investors to reassess risk exposure and diversify their investments away from U.S. assets.

A continued decline in international investment could adversely impact liquidity in the U.S. CRE market and put downward pressure on property prices, potentially leading to broader economic effects.

Market Conditions and Risk Management

Despite these concerns, analysts project a high likelihood of property value growth in 2025, supported by strong domestic economic fundamentals and ongoing investor interest. Nevertheless, the market is facing increasing distress and delinquencies.

At the end of the first quarter of 2025, the distinguishable distress rates in U.S. CRE rose by 23%, totaling over $116 billion. This increase reflects mounting financial stress among property owners, partly driven by rising borrowing costs and declining rental incomes in some sectors.

Economic Indicators and Sector Performance

The U.S. economy experienced a slight contraction of 1.3% in gross domestic product (GDP) during the first quarter of 2025. The decline was mainly caused by increased imports ahead of tariff implementations and reduced government spending.

In terms of employment, the unemployment rate rose marginally by 10 basis points to 4.2%, despite the addition of more than 520,000 jobs in early 2025. These mixed signals highlight ongoing economic adjustments amid policy uncertainties.

Recovers and Trends in CRE Leasing and Construction

In the office sector, leasing activity showed signs of recovery, with volume increasing by 18% in the first quarter compared to the previous quarter. This uptick suggests firms are beginning to renew leases sooner, indicating optimistic expectations for the office market.

Conversely, the retail sector experienced a slight escalation in availability rates to 4.8%, along with negative absorption trends, signaling continued challenges in retail property demand.

The construction pipeline for commercial properties has contracted, mainly due to rising costs and supply chain issues. Retail projects in particular reached their lowest completion rates in over ten years, reflecting caution among developers and investors.

Financing and Investment Outlook

As more entrepreneurs face maturing loans – estimated at over $1 trillion by the end of 2026 – private credit sources are expected to play an increasingly prominent role in financing CRE transactions. Rising interest rates are complicating borrowing strategies, prompting a reassessment of refinancing approaches.

Despite some sector-specific challenges, investment into multifamily and industrial properties remains strong. Meanwhile, interest in retail and office assets has shifted, with investors showing a preference for assets with stable income potential and growth opportunities.

In April 2025, capital inflows into the CRE market spiked, with projections estimating investment volumes could increase by as much as 8% over the year. This suggests robust investor confidence, despite the broader geopolitical and economic uncertainties.

Market Risks and Credit Environment

The bond market has exhibited increased volatility, influenced by factors such as budget deficits and macroeconomic policy risks. While market participants remain motivated to invest, this volatility presents a potential risk to the overall financial stability of CRE financing structures.

Both traditional lenders and private lenders continue active lending, creating a competitive environment for borrowers seeking new loans or refinancing existing debt. This dynamic is expected to persist as market participants navigate ongoing geopolitical and economic uncertainties, with a focus on risk management and investment resilience.

Overall, while the U.S. commercial real estate market faces headwinds from global investor reassessment and macroeconomic shifts, industry fundamentals and strategic investment activity suggest continued resilience through 2025. However, caution remains as market participants monitor tariff developments and their impacts on liquidity, pricing, and financing conditions.

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Global Investors Reevaluating U.S. Commercial Real Estate Exposure