What will happen to commercial real estate values in 2025?

Key takeaways

• CRE lenders staying the course

  The April 2025 Federal Reserve Loan Officer Opinion Survey (SLOOS) shows
  underwriting tightening to be much eased from 1–2 years ago. 

• Value growth in 2025 highly likely

  Lender underwriting standards have been a strong historical leading indicator of capital value growth. April survey results imply value gains for 2025.

• Stay measured

  While sentiment can change, the April 2025 results reinforce our measured approach to tariff-induced volatility. 

   

Investors are asking us how volatility of US tariff policy will impact commercial real estate (CRE) values. A short-term hint might be found in the Federal Reserve’s Senior Loan Officer Opinion Survey (SLOOS),¹ specifically their question about tightening standards on new CRE loan underwriting. The April 2025 survey response suggests that property level values have a high probability of increasing in 2025. This result is particularly telling since the survey results were collected between March 31 and April 11^,2 a period that included the most volatile days following the April 2 "Liberation Day" announcement of tariffs proposed by the Trump administration.

Why the latest survey results matter

The April 2025 results showed that on a net basis, 9.0% of banks were tightening lending standards. That compares to 7.3% in January 2025, 20.2% in April 2024, and 67.4% in April 2023. The April 2025 results indicate slightly more tightening on a net basis since the start of this year, but considerably less tightening on a net basis compared to the past two years.

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The results matter for two reasons. The first is that the April 2025 survey was conducted during March 31 to April 11 when public market reaction to tariff policy announcements were the most volatile. If bank lenders felt the need to materially change their posture toward CRE lending amid tariffs and market volatility, the survey would have been a prime opportunity to communicate that. Instead, the responses were little changed from the previous quarter and reinforced the direction of less tightening compared to a year or two ago.  

The second reason relates to the strong long-term historical relationship between the SLOOS results and CRE capital value growth. From January 2000 to April 2025, the correlation between the net percent of banks tightening their CRE loan underwriting standards and the annual unlevered capital appreciation return of properties in NCREIF’s Open-End Diversified Core Equity (ODCE)⁴ Index two quarters later has been strongly negative at -0.79.³ Tighter underwriting standards (i.e., high positive net scores on the survey) have been highly correlated with low or negative property value change. Looser underwriting standards (i.e., low positive scores to negative net scores on the survey) have been highly correlated with positive property value gains. The strength of this lagged relationship means that the SLOOS survey historically has provided value as a leading indicator of short-term capital value changes for CRE.

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What the results might say about the direction of CRE values in 2025 

Based on linear regression analysis, the 9.0% result from the April 2025 survey suggests that unlevered capital values two quarters from now would be higher than today with annual growth in the single digits (i.e., 3.9%). Importantly, the regression analysis suggests that at a confidence level of 95%, the probability of annual unlevered ODCE capital values posting positive gains two quarters from now is 69%.⁴ If that were to occur, it would reinforce the recent bottoming of unlevered ODCE values in 4Q-2024, despite high levels of tariff-related volatility experienced in the first part of 2025.

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Conclusion: Stay measured amid volatility

As we’ve stated previously, Invesco Real Estate is taking a measured approach to tariff-induced market volatility. While continuous trading in the public markets can drive hyper-responsiveness, we believe private markets have the benefit of digesting information more deliberately, without the emotional spikes. We’ll continue to monitor the SLOOS survey each quarter to gauge sentiment of senior bank loan officers. And while sentiment can change, the April 2025 results reinforce our posture of taking a measured approach to tariff-induced volatility.

Footnotes
1 The SLOOS survey poses questions to senior bank loan officers about underwriting standards and loan demand across a variety of assets, including CRE. One of the key questions for CRE is, "Over the past three months, how have your bank’s credit standards for approving new applications for CRE loans changed?" This question is posed about three types of CRE loans: Construction and land development, nonfarm nonresidential loans (i.e., commercial real estate loans), and multifamily loans. Responses can range from "tightened considerably" to "eased considerably". Tightening refers to making underwriting standards stricter, e.g., reducing loan-to-value ratios, increasing debt service coverage ratios, reducing interest-only payment periods, being more selective about markets. The published result is a net number. Positive numbers indicate that more banks are tightening than loosening their lending standards. Negative numbers indicate that more banks are loosening than tightening their lending standards. A result of zero indicates balance among the responses. Moody’s Analytics weight the responses to the questions on the three types of CRE loans and publish a consolidated index.

2 Federal Reserve, “Senior Loan Officer Opinion Survey on Bank Lending Practices,” May 12, 2025.

3 Invesco Real Estate using data from Moody’s Analytics, the Federal Reserve, and NCREIF.  

4 Invesco Real Estate utilizing data from Moody’s Analytics, the Federal Reserve’s Senior Loan Officer Opinion Survey, and NCREIF, using a linear regression analysis. The standard error of this regression is 5.16%, which along with the 3.9% estimate form the basis for 69% positive value growth probability at a 95% confidence level. 

Investment risks
 The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested. Property and land can be difficult to sell, so investors may not be able to sell such investments when they want to. The value of property is generally a matter of an independent valuer's opinion and may not be realized.

Generally, real estate assets are illiquid in nature. Although certain kinds of investments are expected to generate current income, the return of capital and the realization of gains, if any, from an investment will often occur upon the partial or complete disposition of such investment.

Investing in real estate typically involves a moderate to high degree of risk. The possibility of partial or total loss of capital will exist.

Investing in commercial real estate assets involves certain risks, including but not limited to tenants' inability to pay rent; increases in interest rates and lack of availability of financing; tenant turnover and vacancies; and changes in supply of or demand for similar property types in a given market.

Important information
This information is intended for Institutional Investors that are US residents.

Data as of June 2025, unless otherwise stated.

Correlation indicates the degree to which two investments have historically moved in the same direction and magnitude.

NFI-ODCE (NCREIF Fund Index - Open-End Diversified Core Equity) is a fund-level capitalization weighted, time-weighted return index and includes property investments at ownership share, cash balances and leverage. An investment cannot be made into an index.

Where individuals or the business have expressed opinions, they are based on current market conditions, they may differ from those of other investment professionals and are subject to change without notice. Forward-looking statements are not guarantees of future results. They involve risks, uncertainties and assumptions, there can be no assurance that actual results will not differ materially from expectations.

Invesco Distributors, Inc.