In January we put out a 2025 outlook (Link) that included three main themes for the year:
We’ve now arrived at the halfway point of the year, which is a great time for a check-in, both to hold ourselves accountable and also to provide our clients with the latest insights. With that said, let’s see how we are doing.
The fact that the prediction includes the word “material” and our answer is “kind of maybe” may seem telling in and of itself. The second quarter data for the industry is not out and different firms have released conflicting information on their own Q1 performance, including some down 19% and some up 11% Q125 vs Q124. Reflecting on our own data also makes the story a little challenging. By total number of transactions for the first half of 2025, we are down just 5.5%. From a total dollar transacted standpoint, the story is very different, as we are up just over 49% for the first half of 2025.
The other part of this story is that both transactions and activity feel way up. Pipelines across all of our business functions are robust compared to this point last year. It just feels like there has been an additional flurry of meaningful transactions, but they continue to get pushed. This could be a continued factor of point #2 of higher-than-expected rates as it seems like buyers and sellers continue to push off the finality of their transactions hoping for a more favorable environment to come.
Overall, while the total number of deals is relatively flat, when measured in dollar amount, we have experienced a material increase in transaction level. Additionally, if the pipeline is any indicator, we standby that by YE, CRE transactions will be materially up!
For reasons we saw coming and some we did not (Liberation Day) rates are still elevated above where most investors had hoped we’d be at this point in the year. We are yet to see a rate cut this year and Treasuries are pretty flat from where they were (mildly down in the past week) at the beginning of the year. The Fed also increased their projection on inflation for 2025 up to 3% for the year at their June meeting, but Chair Powell all but said the Fed has no clue where interest rate policy will be 60 days out from their June meeting – driven almost completely by the fact that no impact from the tariffs has shown up in their data yet. As of now, the market is still projecting the first rate cut to come in September (0.25%) immediately followed by another 0.25% cut in October, with mixed feelings as to cuts beyond that.
While we are higher at this point than most had hoped, we do see some positives in the data and market sentiment seems to be moving the right direction. The biggest impact to all of the uncertainty is whether the tariffs will have much of an impact on inflation and if they will stay in place at all. I think that as we progress into the fall and the majority of the trade issues get worked out, the market will respond positively and rates could potentially come down. President Trump has also said that he plans to announce his replacement for Chair Powell, whose term ends in May 2026, as early as this September. All expectations are that the new appointee will likely be more dovish, which in the short(ish) term will likely put downward pressure on rates.
Judging by the total dollar volume of our transaction activity for the first half of the year and our continued conversations with buyers and creditors in the market, we maintain that there is still a tremendous amount of liquidity in the market. That said, quite a bit of it continues to trickle into the market. Given the robust pipeline headed into the second half of the year we think this prediction will pan out to be true. We’ve had several conversations that some capital has hit the pause button given the tariff and trade uncertainty, but again as these talks continue and their impact is more quantified, we think this money will go back “risk on” and make its way into the market. Coupled with any relief in interest rates as mentioned above, we think that there is a strong chance that a lot of money gets put out in 2025.
As we look ahead to the remainder of the year, we remain very bullish for transactions. Even if we do not get much relief in rates, it seems like any elongated period of stability at the current rates could also give the market enough confidence to transact. The tariff and trade surprise made a portion of the market hit pause, but as the impacts of of the tariffs (if any) are finally quantified, it will likely give that portion of the market the confidence to come back and transact.
The one domino that could fall and change everything is any drop in rates (even the cuts that are expected). If data comes in over the next 60 days that there will not be material negative impacts or inflation felt from the tariff debacle, then I think that clears the way for the Fed to make their two rate cuts as planned. If that happens, the market will likely rip with confidence and relief will be felt all across the Treasury yield curve. That would set up the perfect storm for the “tremendous amounts of liquidity” to enter the market and could set up for a very fun and very interesting Q4 and beyond.
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