US commercial real estate transaction analysis – Q1 2025

Economic shifts and recolored outlooks in Q1 2025

The first quarter of 2025 was a moody one, as eager anticipation turned to angst ahead of the tariff-driven trade turmoil that was majorly felt in early April.

The swing in sentiment was seen across the US economy, capital markets, and commercial real estate (CRE). After rising through the final quarter of 2024, business and consumer sentiment began to free-fall through Q1 2025. In the capital markets, Q1 saw equity benchmarks down, fixed income yields up, and overall rising market volatility. While Q1 saw a pick up in financing activity, this increased access to financing began to fade through the end of the quarter.

While CRE was generally less exposed to broader market volatility than other asset classes, it was not immune. As expectations for overall real economic growth declined through the quarter, uncertainty increased, delaying decisions throughout the CRE ecosystem from individual leasing and transaction decisions at the individual property level to the Fed’s next interest rate cut.

Amidst the challenging backdrop, single property transaction activity across the traditional CRE property sectors (industrial, multifamily, office, retail, hospitality, commercial general) remained low. However, despite the deteriorating macro environment, the CRE market continued to function, and there were some signs of positivity. For example, the property sector that everybody loves to hate, office, showed signs of improvement in terms of total dollar volume and average size of properties transacted.

As CRE valuations stabilize and capital costs remain high, single-asset property transaction activity remains suppressed, but not frozen completely. One trend that’s been seen is that there’s been more interest in non-traditional property sectors, such as data centers and seniors housing. Another emerging trend is that the size of properties transacted is decreasing. The median size of transacted single properties has broadly declined over the last 25 years, perhaps a sign that capital interested in and allocated to CRE is finding opportunities to be deployed towards smaller assets, which would likely have smaller total capital requirements.

The major shifts seen across the economy, capital markets and CRE that started in Q1 2025 have already re-colored outlooks for the full year ahead. As 2025 may be a year of uncertainty, and swinging expectations make forward projections volatile, understanding where we are coming from is still very beneficial. And we do just that in our recently released US commercial real estate investment and transactions quarterly report, which takes stock of US CRE trends through Q1 2025.

Q1 2025 transaction activity

Let's start by examining transaction activity and the total dollar volume transacted. Through Q1 2025, more than 33,200 commercial real estate parcels traded for a total of more than $69.3B. On a trailing 4-quarter basis, the total number of transactions fell by about 8% compared to a year ago, but by a much more modest 2% compared to a quarter ago,potentially another encouraging sign that CRE transaction activity is at or near the bottom. A similar trend of moderating declines was also seen when looking at the aggregate transaction dollar volume. The aggregate dollar volume of single-asset transactions for CRE in the first quarter continued to see declines through Q1. Through the end of March 2025, the trailing 4-quarter dollar volume fell by about 12% on a year-over-year(YoY) basis and a more modest 5% on a quarter-over-quarter(QoQ) basis.

It is important to note that there is seasonality in the quarterly data – the first quarter tends to be the smallest in terms of both the number of transactions and total dollar volume transacted. Looking back over more than a quarter century of quarterly data, the first quarter of the year usually accounts for about 23.8% of the total number of transactions each year, and about 22.3% of the aggregate dollar volume for a given year. Q1 2025 transaction activity accounted for 22.5% of the trailing 4-quarter total number of trades, so about 1.4 percentage points below the typical first quarter share. And Q1 2025 total dollar volume of single property transactions accounted for about 20.7% of the trailing 4-quarter total dollar volume, or about 1.7 percentage points below the typical Q1 dollar volume share.

Comparing the Q1 data to prior first quarter periods, the count or number of trades for single-asset commercial real estate was down around 10% compared to the Q1 trades over the prior 10 years, while Q1 2025 dollar volume was down 20% compared to the prior 10 years of first quarter transacted dollar volume.

Pacing and pricing trends

The average daily number of properties transacted during Q1 2025 was 369, well below the 25-year quarterly average of 455, with the measure ticking down QoQ for all property types. Typically, the first quarter of the year is the slowest quarter in terms of transaction activity, but the Q1 2025 transaction activity, as measured by the number of trades, was about 12% lower than average Q1 activity dating back to Q1 2000.

Despite the lower level of trades and relatively sluggish pacing, there was some positivity seen across pricing. The average price per square foot of transacted single properties rose by 0.1% QoQ in Q1 2025, with increases across all sectors except industrial, which fell by 4.6%. Hospitality saw the largest pricing change, +5.9% QoQ. 8 of 15 subsectors saw QoQ price growth on a per square foot basis, led by full-service hotels (+7.1%), bars and restaurants (+5.9%), and general office (+5.5%). On a year-on-year basis, the average price per square foot of transacted single properties increased by 2.6% YoY across all property sectors. Across the major property types, average price per square foot rose annually for hospitality (+14.8%), retail (+5.2%), multifamily (+3.9%), and office (+3.5%), but fell for industrial (-0.1%), and commercial general and mixed-use (-0.2%).

Regional and metro performance

Often hidden in the discussion of national aggregate trends, there continued to be substantial differences across local metros (metropolitan statistical areas, MSAs). Looking at the Q1 2025 pricing data for the 10 largest MSAs by population across the four major property sectors (industrial, office, multifamily, retail) we can see a number of interesting trends, especially when looking at median pricing ($/SF).

The only MSAs in that list that saw negative pricing trends for industrial deals YoY were New York, Los Angeles, and Houston, notably all large port cities, which is potentially a signal of a slowdown in dealmaking in advance of tariffs. Outside of these metros, the other major MSAs saw double-digit increases.

Philadelphia and Phoenix saw positive pricing trends across all sectors in Q1 2025. Phoenix saw double-digit growth for median price per square foot for all sectors but multifamily (+4%), while price growth in Philadelphia was a bit more modest (multifamily +4%, retail + 4%). On the opposite end of the spectrum, Houston saw double-digit declines across all four major property sectors: -39% industrial, -42% office, -14% multifamily, and -39% retail. And in the middle, Los Angeles saw the median price per square foot for multifamily flat YoY, but did see large declines across the other property sectors.

It is important to note that the median price per square foot metric can swing significantly from period to period and drive some large percentage changes, but even so the direction of those changes and the range are important and can be helpful indicators of change within a market and sector.

Property sectors

Industrial

For single-asset industrial trades through Q1 2025, the median transaction size in dollar terms was up 14.1% YoY but was down 4.9% vs Q4 2024 to $1.59M, while the median size of industrial properties traded in square feet (SF) increased by 5% YoY to 15.2K SF. On a YoY basis, Q1 2025 pricing ($/SF) for industrial was down 0.1%. Within the sub-sectors for industrial, storage pricing fell the most, down more than 20% YoY, followed by manufacturing which was down 13% YoY. Warehouse/distribution and other industrial fared better, and was up approximately 4% year on year in the first quarter. On average around 54 properties transacted per day in Q1 2025, well below recent historical levels since the Pandemic.

Multifamily

For single-asset multifamily trades through Q1 2025, the median transaction size in dollar terms was up 6.3% YoY but was down 14.1% vs Q4 2024 to $1.4M, while the median size of multifamily properties traded in square feet (SF) decreased by 1.4% YoY to 8.7K SF. On a year-on-year basis, Q1 2025 pricing ($/SF) for multifamily was up 3.9% to $150.80/SF. On average around 106 properties transacted per day in Q1 2025, roughly in line with Q1 2024.

Office

For single-asset office trades through Q1 2025, the median transaction size in dollar terms was up 25.2% YoY but was down 6.7% vs Q4 2024 to $1.56M, while the median size of office properties traded increased by 0.9% YoY to 10.1K SF. On a year-over-year basis, Q1 2025 pricing ($/SF) for office was up 3.5% to $137.45/SF. Within the sub-sectors for office, medical office pricing rose the most, up more than 6.2% YoY, while the broader sub-sector of general office was also up but by a more modest 3.6% YoY. On average around 62 office properties transacted per day in Q1 2025, far below the typical pre-pandemic level of around 80.

Retail

The median transaction size for retail properties in Q1 2025 was up 8.8% YoY but was down 4.8% vs Q4 2024 to $1.33M, while the median size of retail properties traded decreased by 0.6% YoY to 9.1K SF. On a year-on-year basis, Q1 2025 pricing ($/SF) for retail was up 5.2%. Within the sub-sectors for retail, Anchor + Other Big Box pricing rose the most, up more than 23.2% YoY, followed by Street + Strip Centers which rose 5.2% YoY. Pricing for Bars + Restaurants and Automotive sub-sectors also rose on YoY basis, but were up by a more modest 5.0% and 4.2%, respectively. On average around 87 retail properties transacted per day in Q1 2025.

Hospitality

For single-asset hospitality trades through Q1 2025, the median transaction size in dollar terms was up 11% YoY but was down 13% vs Q4 2024 to $4M, while the median size of hospitality properties traded, in square feet, decreased by 4% YoY to 31.5K SF. On a YoY basis, Q1 2025 pricing for hospitality was up 14.8%. Within the sub-sectors, full-service pricing ($/SF) was up 12.8% YoY and limited-service properties were up even more, or 15.8% vs Q1 2024. While there was positive movement in the median transacted price per square foot, only 5 properties transacted on an average day in Q1 2025, well below the 25-year average of 9.

Commercial general and mixed use

For single-asset commercial general and mixed-use trades through Q1 2025, the median transaction size in dollar terms was up 2.9% YoY but was down 10% vs Q4 2024 to $900K, while the median size of commercial general and mixed-use properties traded decreased by 9% YoY to 7.6K SF. On a YoY basis, Q1 2025 pricing for commercial general and mixed-use was down 0.2%. Within the sub-sectors, mixed-use pricing fell the most and was down more than 8.4% YoY, while the commercial general sub-sector was up 10% YoY. On average, around 53 properties were transacted daily in Q1 2025.

Conclusion

As we look back to the end of 2024, when hopes were rising across the economy, capital markets, and CRE on the expectation that 2025 would bring higher valuations, continued strong operating performance, and eased capital conditions (lower cost, higher availability), it was little wonder that optimism was high. However, after the first quarter of 2025, we are reminded that high hopes are not always reality. The first quarter US CRE transaction activity, at least in terms of single-property transactions within the traditional CRE sectors (hotel, industrial, office, multifamily, retail) did not show that optimism materialize, at least not yet. There were some positive signs that the excitement was being realized and turned into action across non-traditional sectors (i.e., data centers, seniors housing) and in larger transactions at either the portfolio or entity level. However, while these are evolving and exciting spaces, they don't necessarily represent the broader CRE market, which appears to still be only flirting with the idea of a recovery. At this point, we’ll have to see what the year holds in store.