1. Higher Interest Rates
Interest rates remain elevated compared to previous years, making borrowing more expensive14. The Federal Reserve's benchmark rate is expected to be around 3.5%-3.75% by the end of 2025, which is still higher than the sub-4% rates many borrowers previously enjoyed1. This increase in borrowing costs can lead to a 75% to 100% jump in debt service payments for some borrowers1.
2. Tighter Lending Standards
Banks have significantly tightened their commercial real estate lending standards2. A Federal Reserve survey showed that nearly all banks tightened commercial real estate lending standards in recent quarters, with approximately two-thirds of banks reporting tighter underwriting for non-residential and multifamily loans2. This increased scrutiny makes it more challenging for borrowers to qualify for loans.
3. Declining Property Values
Many commercial properties, especially in the office sector, have seen significant declines in value since 20213. This drop in asset values makes refinancing more difficult, as properties may now be worth less than their outstanding loan balances3. For example, nearly 30% of maturing office loans in 2025, or approximately $30 billion, is associated with properties estimated to be worth less than the debt secured against them3.
4. Massive Loan Maturities
A significant challenge is the large volume of commercial real estate loans set to mature in the coming years. Approximately $2.0 trillion of commercial real estate mortgages are scheduled to reach maturity from 2024 through the end of 2026 2. This "maturity wall" creates increased competition for refinancing and puts pressure on lenders and borrowers alike 4.
5. Sector-Specific Challenges
Different commercial real estate sectors face unique challenges that can impact loan availability. For instance, the office sector is struggling with reduced occupancy due to remote work trends, while retail spaces are grappling with evolving consumer behaviors 5. These sector-specific issues can make lenders more cautious about providing loans for certain property types, requiring borrowers to demonstrate stronger business plans or seek alternative financing options 6.
- DellaPelle, Anthony F., Esq. “Ten Challenges Facing Commercial Real Estate in 2025.” NAIOP, 1 Jan. 2025, https://www.naiop.org/research-and-publications/magazine/2024/Winter-2024-2025/business-trends/ten-challenges-facing-commercial-real-estate-in-2025/.
- Tetz, Kelvin. “The Commercial Real Estate Debt Dilemma.” Moss Adams LLP, 3 Apr. 2024,
- https://www.mossadams.com/articles/2024/04/commercial-real-estate-debt-dilemma.
- Robson, Will, and Tom Leahy. “Real Estate in Focus: 2025 Trends to Watch.” MSCI, 8 Jan. 2025, https://www.msci.com/www/blog-posts/real-estate-in-focus-2025/05250339676.
- Glen. “Pretend and Extend, Will Commercial Real Estate Take down the Economy in 25?” Fairview Commercial Lending, 2 Dec. 2024, https://www.fairviewlending.com/will-commercial-real-estate-fall-2025/.
- Levine, Matthew B. “Seizing Opportunities in Commercial Real Estate: Why 2024-2025 Could Be Your Moment.” Axiom, 12 Nov. 2024, https://www.axiomlaw.com/blog/commercial-real-estate-2025-opportunities.
- Murray, John, et al. “Turning the Corner? Commercial Real Estate Themes for 2025.” Pacific Investment Management Company LLC, 4 Dec. 2024, https://www.pimco.com/us/en/insights/turning-the-corner-commercial-real-estate-themes-for-2025.