What will happen to commercial real estate values in 2025?

Investors are asking us how volatility of U.S. tariff policy will impact commercial real estate (CRE) values. A short-term hint might be found in the Federal Reserve's Senior Loan Officer Opinion Survey (SLOOS)¹, specifically their question about tightening standards on new CRE loan underwriting. The April 2025 survey response suggests that property level values have a high probability of increasing in 2025. This result is particularly telling since the survey results were collected between March 31 and April 11 ², a period that included the most volatile days following the April 2 "Liberation Day" announcement of tariffs proposed by the Trump Administration.

Why the latest survey results matter

The April 2025 results showed that on a net basis, 9.0% of banks were tightening lending standards. That compares to 7.3% in January 2025, 20.2% in April 2024, and 67.4% in April 2023. The April 2025 results indicate slightly more tightening on a net basis since the start of this year, but considerably less tightening on a net basis compared to the past two years. 

Loan underwriting standards in April 2025 changed little from one or two years ago

The results matter for two reasons. The first is that the April 2025 survey was conducted during March 31 to April 11 when public market reaction to tariff policy announcements were the most volatile. If bank lenders felt the need to materially change their posture toward CRE lending amid tariffs and market volatility, the survey would have been a prime opportunity to communicate that. Instead, the responses were little changed from the previous quarter and reinforced the direction of less tightening compared to a year or two ago.  

The second reason relates to the strong long-term historical relationship between the SLOOS results and CRE capital value growth. From January 2000 to April 2025, the correlation between the net percent of banks tightening their CRE loan underwriting standards and the annual unlevered capital appreciation return of properties in NCREIF's Open-End Diversified Core Equity (ODCE)⁴ Index two quarters later has been strongly negative at -0.79.³ Tighter underwriting standards (i.e., high positive net scores on the survey) have been highly correlated with low or negative property value change. Looser underwriting standards (i.e., low positive scores to negative net scores on the survey) have been highly correlated with positive property value gains. The strength of this lagged relationship means that the SLOOS survey historically has provided value as a leading indicator of short-term capital value changes for CRE.

Loan underwriting standards have been strongly correlated with forward capital value returns

What the results might say about the direction of CRE values in 2025 

Based on linear regression analysis, the 9.0% result from the April 2025 survey suggests that unlevered capital values two quarters from now would be higher than today with annual growth in the single digits (i.e., 3.9%). Importantly, the regression analysis suggests that at a confidence level of 95%, the probability of annual unlevered ODCE capital values posting positive gains two quarters from now is 69%.⁴  If that were to occur, it would reinforce the recent bottoming of unlevered ODCE values in 4Q-2024, despite high levels of tariff-related volatility experienced in the first part of 2025.

April 2025 lender results suggest strong likelihood of positive capital value growth this year

Conclusion: Stay measured amid volatility.

As we've stated previously, Invesco Real Estate is taking a measured approach to tariff-induced market volatility. While continuous trading in the public markets can drive hyper-responsiveness, we believe private markets have the benefit of digesting information more deliberately, without the emotional spikes. We will continue to monitor the SLOOS survey each quarter to gauge sentiment of senior bank loan officers. And while sentiment can change, the April 2025 results reinforce our posture of taking a measured approach to tariff-induced volatility.