Commercial real estate transaction activity lost momentum in May as uncertainty surrounding interest rates and geopolitical tensions weighed on investment decisions, raising concerns that second-quarter sales volumes could fall short of last year’s levels.
Total transaction volume reached $42 billion in May, a 15% increase from a year earlier. However, much of that growth was driven by $6.8 billion in merger-and-acquisition activity. Excluding those deals, sales of individual properties declined 4% year over year, extending weakness that first appeared in April, according to BisNow.
The slowdown marks a sharp contrast to the strong start of 2026, when first-quarter transaction volume increased 27% compared to the previous year.
Individual Asset Sales Lose Momentum
Analysts point to rising interest rates and economic uncertainty as factors behind the recent cooling. The timing aligns with increased market volatility following the outbreak of the U.S.-Iran conflict, which pushed Treasury yields higher during a period when many transactions were already moving through the sales pipeline.
Because commercial property transactions often take several months to close, shifts in financing conditions can quickly affect buyer activity and deal completion.
As a result, second-quarter sales totals are now at risk of missing last year’s performance. June transaction volume would need to exceed $42 billion to match second-quarter 2025 levels.
Pricing Continues to Improve
Despite slower deal activity, property values continued to recover.
The RCA CPPI U.S. National All-Property Index rose 1.6% year over year in May, marking the strongest annual increase since commercial real estate prices resumed growth earlier this year.
The improvement in pricing has helped draw some investors back into the market, even as borrowing costs remain elevated.
Portfolio Deals Offset Weakness in Office Sector
Large portfolio transactions helped support overall sales activity. Portfolio deal volume surged 205% compared to May 2025, helping offset declines in several major property categories.
Office sales volume fell 41% year over year, while development site transactions dropped 46%. In contrast, senior housing, apartment, and industrial properties each posted sales volume gains of at least 30%.
Higher Rates Remain a Concern
Investors continue to watch interest rates closely. The yield on the 10-year U.S. Treasury briefly moved above 4.5% in May, a level often viewed as a challenge for refinancing older debt and supporting new transactions.
While some market participants worry higher rates could further slow deal activity, financing remains available and merger-and-acquisition activity continues to gain traction.
Market observers say those factors could support a rebound in transactions later this year if economic conditions stabilize and no new disruptions emerge.
Meanwhile, average cap rates continued to edge higher, reaching 6.6% in May. Industrial properties recorded one of the largest monthly increases, while office and apartment cap rates also moved slightly upward.
