As of September 2025, the commercial real estate sector in the United States is showing the first sustained signs of recovery after several turbulent years. Analysts note that while interest rates remain elevated, a mix of improving fundamentals, strategic capital deployment, and innovative repositioning strategies is driving cautious optimism. Key asset classes such as multifamily housing, industrial logistics, and data centers are beginning to stabilize, suggesting the worst of the downturn may be behind the industry.
CBRE reports that investment activity is on track to grow by roughly 10 percent this year. Although volumes remain below the highs of the pre-pandemic era, the renewed pace signals investor confidence that the market is entering a cyclical turning point. Cap rates, which reflect risk premiums, are showing signs of gradual compression, making long-term commitments more attractive. Vacancy rates are also stabilizing, particularly in multifamily housing, where demand has outpaced limited new construction. In fact, national multifamily vacancy dipped below five percent in the first quarter of 2025, underscoring the resilience of the sector despite broader economic headwinds.
Morgan Stanley’s mid-year outlook highlights that commercial real estate values have repriced between 20 and 25 percent across U.S. regions since their peak, creating a compelling entry point for investors willing to take a long-term view. This reset in valuations is combined with a slowdown in new construction, meaning that existing supply is better positioned to capture growing demand. Analysts suggest that the repricing has not only made assets more affordable but also opened opportunities for investors to strategically reposition properties, from converting obsolete office towers into residential units to upgrading industrial warehouses with modern technology.
Momentum in lending is another indicator of recovery. CBRE’s Lending Momentum Index, which tracks deal activity, climbed 13 percent from the previous quarter and nearly doubled compared to the same period in 2024. This surge suggests that banks and alternative lenders alike are warming back up to the sector, aided by tighter spreads in commercial mortgages. Access to capital is once again flowing toward acquisitions and refinancing, particularly for stable asset classes like multifamily and industrial.
On the ground, individual cities reflect the shifting dynamics. San Francisco, which has long symbolized the struggles of office real estate in the post-pandemic landscape, is beginning to show life. Leasing activity, particularly from technology firms focused on artificial intelligence, has absorbed nearly one million square feet of space in the first half of the year. While vacancy remains elevated, the renewed demand suggests that certain segments of the office market could find a new equilibrium. In New York, a wave of office-to-residential conversions is altering the city’s real estate landscape. Analysts estimate that more than 23 million square feet of office space could be repurposed this year alone, cutting excess inventory and creating housing supply in a market where residential demand remains strong.
Retail, often written off in recent years, is also staging a selective comeback. Investors are showing renewed interest in grocery-anchored neighborhood shopping centers and properties that cater to everyday consumer needs. These sites offer steady, predictable income streams and are increasingly viewed as safe bets compared to more volatile retail formats like traditional enclosed malls. The shift underscores a broader strategy among investors: prioritize stability and long-term resilience over high-risk, high-reward plays.
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The role of technology in this recovery cannot be overstated. From predictive analytics that inform investment strategies to proptech tools that streamline building management, data-driven approaches are reshaping how investors evaluate and reposition properties. For underutilized spaces, adaptive reuse strategies—such as converting commercial floors into coworking hubs or logistics micro-centers—are becoming viable paths to recovery.
While challenges remain, including high borrowing costs and lingering macroeconomic uncertainty, there is a growing consensus among industry leaders that commercial real estate is beginning to stabilize. The reset in valuations, the stabilization of vacancy rates, and the gradual revival of lending all point toward the early stages of a recovery cycle.
For investors, the message is clear: those who act now, leveraging technology and strategic capital to repurpose and reposition assets, are best positioned to lead the next wave of growth. As the sector edges back toward equilibrium, the combination of patience, innovation, and well-placed risk-taking is expected to define the winners of this new market cycle.
For confirmation of this story, see reporting from CBRE and Morgan Stanley market outlook reports.
