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The U.S. commercial real estate (CRE) market is showing early signs of a rebound, with deal activity in the second quarter of 2025 rising nearly 18% year-over-year — a stronger pace than expected, according to new research from JPMorgan.
Entity-Level Transactions Dip, but Core Property Sales Rise
Although June’s total sales volume declined nearly 16% from a year earlier to $38 billion, much of that drop came from a slowdown in large-scale entity transactions, such as mergers and acquisitions of REITs and private firms. When focusing on direct property sales, excluding nearly $900 million in entity-level deals, transaction volume actually saw a 6% increase compared to the same period in 2024.
Analysts at JPMorgan say the second-quarter performance exceeded their initial projections. Positive earnings signals are also emerging for real estate brokerages, helped by foreign exchange factors that are boosting profitability.
Total CRE sales for the second quarter came in just under $110 billion. Gains were broad-based, with retail transactions up over 37%, industrial up 15%, and office properties seeing a gain of more than 11%. Given recent upward revisions to April and May data, JPMorgan believes June’s final numbers could see a significant upward adjustment as well.
Limited New Construction Fuels Investor Optimism
While JPMorgan didn’t identify specific causes behind the acceleration, other experts suggest that improved market fundamentals and reduced new development are key factors driving momentum. With construction starts slowing sharply, long-term investors are starting to view CRE as a relatively stable source of yield and value.
Looking ahead, the ongoing shortage in new supply may create more urgency in the market, particularly for buyers with a long-term view. Industry analysts believe this imbalance between demand and limited inventory could set the stage for a more active investment environment into 2025 and beyond.
Cap Rates Shift as Investors Reevaluate Risk
Not all property types are experiencing the same recovery. Hotel and apartment sales declined more than 45% in June year-over-year. However, overall cap rates continued to tighten, dropping an average of 25 basis points to 6.5%. Office assets saw a notable drop in cap rates to 7.3%, while apartment properties declined to 5.4%. In contrast, retail and industrial cap rates edged slightly higher, reflecting increased investor scrutiny or shifting risk premiums.
There are also signs of renewed investor interest in urban office space, particularly in central business districts. After years of value erosion due to hybrid work trends, these properties are once again gaining attention as workers slowly return to physical offices. High-quality buildings in prime locations are starting to attract capital, with some experts expecting these assets to become leading performers in the next phase of the market cycle.
