### The Resurgence of Capital and Debt Markets: What It Means for Commercial Real Estate
Not long ago, commercial real estate (CRE) debt and capital markets were under strain. Rising inflation, uncertainty surrounding debt maturities, and concerns about certain asset classes—particularly office properties—made it difficult to secure financing.
However, the landscape 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, driven in part by the Federal Reserve’s easing cycle.
### **Why It’s Happening**
Cushman & Wakefield Senior Economist Abby Corbett, who authored the report, identified several key trends contributing to this shift:
– **Rate-Cutting Cycle**: While the Federal Reserve paused rate cuts in January 2025, its three cuts in 2024 eased financial conditions across the broader economy. This looser financial backdrop is leading to stronger access to both debt and equity capital.
– **Growing Origination Volumes**: CRE loan originations rose by 8% year-over-year in 2024, suggesting that the market is adjusting to new conditions and financial strategies.
– **Increased Lender Activity**: The pool of active lenders is expanding. Debt fund lender activity in 2024 surged by 55% above the 2015–2019 average, while the commercial mortgage-backed securities (CMBS) lender pool increased by 42% year-over-year.
### **Strategic Factors to Consider**
The report suggests that CRE investors and developers can capitalize on market momentum by employing the following strategies:
– **Securing Short-Term Floating-Rate Debt**: As the Federal Reserve is expected to cut rates by 50 basis points each year through 2026, borrowers may find opportunities in short-term floating-rate debt—provided terms and deal structures align with their strategies.
– **Utilizing Tight Fixed-Rate Debt Spreads**: Corporate bond and CRE debt spreads are already tight, and continued competition for capital may push them even lower, creating favorable conditions for borrowers.
– **Avoiding Market Stagnation**: Hyper-focusing on short-term market fluctuations may lead to missed opportunities. The report advises against paralysis, instead emphasizing caution, prudence, and risk mitigation as the best approaches in a volatile market.
### **Looking Ahead**
Corbett acknowledged that capital market and debt challenges will persist in 2025, marking the year as one of cautious, gradual recovery. However, she also noted that many sectors and markets could benefit from a mix of debt liquidity trends, capital flows, and sector-specific advantages that work in CRE’s favor.
While hurdles remain, the evolving financial landscape suggests that capital markets are on the path to resurgence, potentially driving new investment opportunities in commercial real estate.
