The commercial and multifamily real estate finance sector had its second-sharpest drop in industry sentiment on record during the first quarter of 2025, with the Trump administration’s global tariff policies weighing heavily on attitudes about economic conditions and the industry’s outlook.
A survey of senior executives in the commercial real estate finance industry conducted by the CRE Finance Council (CREFC) found that 80% of respondents expect worse economic conditions over the next 12 months, with only 7% predicting improved conditions. It is a dramatic shift from the trade association’s survey from the fourth quarter of 2024, when only 12% of respondents had a negative outlook and 42% thought conditions would improve.
The CREFC’s sentiment index fell 30.5% over the past quarter. The quarterly decline is surpassed only by the group’s survey conducted during the first quarter of 2020 at the onset of the COVID-19 pandemic.
“The CRE finance industry finds itself at a genuine crossroads,” Lisa Pendergast, president and CEO of CREFC, said in a press release. “The dramatic drop in our sentiment index clearly signals concern, but beneath the headline numbers we see pockets of cautious optimism, particularly regarding how lower interest rates might finally break the transaction logjam that has persisted through much of 2024.”
Pendergast added: “What makes this quarter’s survey particularly revealing is the stark contrast to last quarter’s record high sentiment, demonstrating how quickly market psychology can shift with changing economic policies.”
Liberation Day shift
The survey was conducted between March 31 and April 7, meaning it straddled President Donald Trump’s historic “Liberation Day” speech on April 2, when he upended the global trade order with sweeping tariffs impacting nearly every U.S. trading partner.
The CREFC reported that it received 41% of responses before the April 2 announcement and 59% after. While overall industry sentiment was negative in both cases, the post-Liberation Day responses represented a 33.5% quarterly decline in the sentiment index compared to a 26.5% drop for responses received before the tariff announcement.
The trade association also revealed that 60% of those who responded after April 2 were either “very concerned” or “extremely concerned” about the potential impact of tariff policies on construction costs and commercial real estate development.
Split opinions on mortgage rate impacts
The CREFC survey asked commercial real estate finance executives “How will mortgage rates and (capitalization) rates impact the performance of all CRE finance-related businesses over the next 12 months?”
About 30% of respondents predicted positive impacts, 39% had a neutral opinion and around 30% anticipated negative impacts. The report noted that the “notably split sentiment” suggests “divided perspectives on whether potentially lower rates might offset other negative factors.”
Regarding financing demand, 48% said they expect greater borrower demand for commercial real estate and multifamily loans over the next 12 months, 39% said they think demand will remain the same and 13% expect reduced borrower demand. Those results show a decidedly more cautious outlook among industry executives compared to the fourth quarter of last year, when 91% expected increased demand.
Industry thoughts
The CREFC report includes quotes from anonymous industry executives who offered their opinions on the state of the commercial and multifamily real estate finance industry.
Some were frustrated, such as one senior executive who said that “there is a lot of volatility right now which makes the market very unpredictable. This hurts issuers’ ability to bring deals to market in a timely and orderly manner.”
Another industry executive said that while “it’s going to take time to understand the effect of tariffs,” they “expect interest rates to stay a touch lower than where they were mid-Q1, which should bring more borrowers to the table.”
One respondent seemingly threw up their hands over the ongoing economic uncertainty.
“The most astonishing set of unknown unknowns as we have experienced in my professional life,” the respondent remarked. “I don’t have a clue.”
