Over the past few years, the commercial real estate sector has faced its share of economic challenges. Lenders and investors have had their problems, too, as high borrowing costs, elevated inflation and quickly escalating interest rates have made deal underwriting much more complex.
Rather than speculating whether commercial real estate is a safe haven, smart investors are already leaning into sectors that consistently outperform — such as medical office buildings and manufacturing properties. Current economic indicators and commercial trends suggest that we should be cautiously optimistic.
The performance of the commercial sector has varied, depending on the type of real estate. But overall fundamentals are holding up, and commercial mortgage brokers and originators have strategic options that will help them get through these difficult times.
Economic crosscurrents
To understand commercial real estate’s role as a safe haven, one should first look at the bigger picture of the economy. To combat inflation, the Federal Reserve hiked interest rates from nearly zero in early 2022 to between 5.25% to 5.50% by July 2023. In late 2024, the Fed cut rates by 100 basis points to a range of 4.25% to 4.50%, where it has remained during 2025.
With inflation moving toward the Fed’s target rate of 2%, and weakness beginning to appear in jobs market, there is increasing pressure on the central bank to cut rates. As this article is being completed in August, there are many signs pointing to the Fed possibly cutting rates at its September meeting.
Economists interviewed by REIT.com noted early signs of recovery for commercial real estate, anticipating lower interest rates and subsiding inflation ahead, alongside stabilizing asset values and renewed investor confidence. There was growing optimism that the worst of the interest rate turbulence may be behind us.
CBRE reports that erratic U.S. trade policy, geopolitical uncertainty and risks associated with the ongoing U.S. deficit spending have tempered business and consumer confidence in 2025. In response, it has lowered its forecast for annual gross domestic product growth to 1.5% from between 2% and 2.5% at the beginning of the year. Even with these headwinds CBRE still expects commercial real estate investment activity to grow by 10% in 2025 to $437 billion. A nice increase, but still 18% below the annual averages for the 2015 to 2019 period.
Opportunity and caution
Real estate is a conventional hedge in inflationary times because property income streams are typically more stable and frequently indexed to inflation. Though higher financing costs have taken a toll on access to capital, fundamentals for many commercial sectors were still strong.
“Unlike hard assets that rely on price appreciation to generate returns, commercial real estate offers cash flow through tenant leases while benefiting from long-term appreciation.”
Interest rate increases caused capitalization rates — or expectations for potential returns on investments for an income-producing property — to rise, which gradually lowered valuations. Across the country, commercial cap rates increased more than 80 basis points on average between 2022 and 2023 and then by another 30 basis points in the first few months of 2024.
The asset category of commercial real estate continues to exhibit strong stability despite the difficulties created by elevated interest rates. Smart investors now direct their attention to market segments that demonstrate structural resilience, so brokers should examine these current market developments.
Multifamily hedge
A relatively safe harbor is multifamily real estate. Housing hasn’t changed. Unless you’re in some super-niche markets, there are still decent occupancy numbers in the rental space. National rent increases have slowed this year due to increased inventory, but rates have still increased by about 1.5% in 2025, according to CRE Daily
Certain markets with limited supply, such as New York and Kansas City, saw year-over-year increases of between 3% and 3.5%. So, while rent growth slowed down compared to the pace of 2024, it remains positive and trending upward in certain markets.
Furthermore, looking at recent data, CRE Daily reports that 544,000 units were absorbed in 2024 — an impressive 22% more units when compared to 2023 — with Class B properties leading demand. This suggests a growing number of multifamily owners using their ownership to hedge against inflation by increasing rents over time.
With demand outpacing supply in key markets and Class B assets driving absorption, multifamily remains a proven inflation hedge. Because multifamily properties are valued based on income generation, investors have greater control over boosting the property’s value, regardless of market conditions, providing a strategic way to maximize returns.
Industrial might
The industrial sector has remained resilient. Despite vacancies rising slightly and new warehouse supply coming on the market, e-commerce and supply chain restructuring are still propelling strong demand for logistics and warehouse facilities.
Domestic manufacturing space is in high demand as reshoring accelerates, with tenants signing 5-year to 10-year leases, which translate into cash flows that are not overly sensitive to short-run economic fluctuations. For instance, the Dallas-Fort Worth market continued to benefit from steady demand and lower net completions.
Medical office buildings offer great opportunities for the savvy commercial investor. They combine demographic inevitability with operational stability. During 2023 economic slowdown, medical buildings retained above 92% occupancy nationwide, due to aging demographics and a demand resistant to recession.
Furthermore, tenants in medical buildings prefer long-term leases of up to 10 years, reducing turnover risk while inflation-resistant structures like triple-net leases (NNN) with 2%–3% annual escalations safeguard returns and attract lenders offering rates 30–50 bps below traditional office financing.
Asset class confidence
Several factors explain why commercial real estate is viewed as a safe harbor in turbulent times, beginning with the asset class produces steady income through leases. Long-term leases on properties — whether a 10-year lease on a warehouse or a multiyear apartment lease — provide relatively predictable cash flow. Unlike hard assets that rely on price appreciation to generate returns, commercial real estate offers cash flow through tenant leases while benefiting from long-term appreciation.
During periods of high inflation or rate volatility, investors value the tangible nature of real estate and its potential to preserve capital. Owners mostly deal with manageable maintenance expenses, rather than the kind of cost spikes that hit ground-up developments reliant on global supply chains. This insulation can make existing commercial assets relatively safer bets.
Many commercial sectors benefit from long-term secular drivers that persist despite short-term rate movements. The needs for housing, logistics, healthcare facilities and data infrastructure do not disappear when interest rates rise — if anything, they become more pronounced as society evolves.
Industrial demand is also bolstered by companies reconfiguring supply chains (including reshoring manufacturing to the U.S.) — a trend creating new opportunities for warehouses and manufacturing facilities. These trends can make certain commercial assets defensive plays, meaning they hold value and even grow in appeal when other investments falter.
Impact on brokers
For commercial mortgage brokers and originators, the current landscape demands both caution and proactiveness. Elevated interest rates have certainly thinned the pipeline of easy deals, and brokers likely felt the squeeze of lower transaction volume — 2024 saw U.S. industrial net absorption fall to its lowest annual level since 2011 amid the high-rate environment.
However, this cyclical downturn has a silver lining: It gives brokers a chance to strategize and advise clients on the next phase. Finding the safe harbor commercial segments for clients is a significant opportunity. Brokers should use data and insights to guide investors to markets and property types that perform well over time.
Originators, for their part, can seek out niche lenders or programs, such as agency lenders in multifamily or Small Business Administration programs for owner-occupied properties, that remain active. It’s also essential to prepare for the turning of the tide. When interest rates eventually begin to decline from their peak, there could be a rush of activity — a wave of refinancings for maturing loans and increased acquisitions as borrowing costs ease.
The Mortgage Bankers Association estimates that nearly $1 trillion in outstanding commercial mortgages held by lenders and investors will mature this year. More will mature next year. Brokers will be in a good position to help owners navigate these maturities if they build relationships now and remain knowledgeable about refinance options. To put it briefly, brokers who stay active during the storm will profit when things settle down.
Broker moves
To turn your opportunities into deals, here are key moves to make in the foreseeable future for the serious broker looking to make an impact:
- Reach out to lenders specializing in the sectors best positioned for stability, such as medical office buildings, industrial or multifamily properties and schedule a meeting to build relationships.
- Host a client webinar or virtual session for potential clients, highlight inflation-resistant assets, position yourself as an authority and present them with opportunities to ease pricing concerns.
- Pull a list of local property owners with loans maturing in 2026, aiming to connect with five owners by next week, offering possible refinancing solutions as many will need creative solutions as maturities loom.
Looking ahead, the commercial real estate industry offers a cautiously optimistic outlook even as the broader economy works through inflation and interest rate challenges. Most commercial executives have a more confident outlook for 2025 than they did at the end of 2024, a remarkable swing in sentiment after two years of pullbacks.
The overall picture indicates that commercial properties will continue to be a desirable and strategically significant asset class, even though not all sectors will grow equally. The takeaway for brokers and lenders is straightforward: Concentrate on securing good deals in industries offering strong performance. Be quick with financing plans and keep giving clients data-driven guidance. Make yourself an industry expert and help your clients find a safe harbor in turbulent times.
