### The Resurgence of Capital and Debt Markets: What It Means for Commercial Real Estate
Not long ago, the commercial real estate (CRE) debt and capital markets faced significant challenges. Inflation, uncertainty surrounding debt maturities, and concerns over asset performance—particularly in the office sector—made it difficult to secure capital and debt.
However, the situation appears to be shifting. According to Cushman & Wakefield’s report, **”Tide is Turning: U.S. Debt Markets are Re-Engaging,”** the CRE debt and capital markets are entering a new phase of recovery, catalyzed by the Federal Reserve’s shift toward easing monetary policy.
### Why It’s Happening
Cushman & Wakefield Senior Economist Abby Corbett, who authored the report, highlighted several key factors driving this shift:
– **Rate-Cutting Cycle**: While the Federal Reserve paused its rate cuts in January 2025, the three rate reductions in 2024 helped ease financial conditions across the broader economy. This relaxation in financial markets has had a ripple effect, increasing access to both debt and equity capital.
– **Growing Origination Volumes**: CRE loan origination volumes rose 8% year over year in 2024, signaling that investors and lenders are adapting to evolving market conditions.
– **Increased Lender Activity**: The report highlighted a growing pool of active lenders across different groups. Debt fund lender activity surged 55% above the 2015-2019 average, while the 2024 CMBS lender pool expanded by 42% year over year.
### Strategic Considerations for Investors and Developers
According to the report, CRE investors and developers could capitalize on current market conditions in the following ways:
– **Securing Short-Term Floating-Rate Debt**: Given expectations that short-term yields will decline through 2025 and into 2026, investors might benefit from floating-rate debt—provided it aligns with their strategy and deal profile. The Federal Reserve is anticipated to cut rates by 50 basis points each year.
– **Taking Advantage of Tight Fixed-Rate Debt Spreads**: As competition for capital intensifies, corporate bond and CRE debt spreads continue to shrink. This trend presents an opportunity for investors seeking favorable financing conditions.
– **Avoiding Stagnation Amid Market Volatility**: The report cautions against becoming overly fixated on daily market fluctuations. “Accept that we are in a high-volatility era and recognize that it is important not to get left behind,” it states. Investors are encouraged to focus on long-term strategies rather than short-term uncertainties.
While capital market challenges remain in 2025, Corbett anticipates a **gradual and cautious recovery** with distinct variations across sectors. Some markets and asset classes are expected to benefit from increasing debt liquidity, favorable capital flows, and sector-specific tailwinds that could work in the CRE industry’s favor.
