Return-to-office drives CRE growth. Here's what's evolving.

Rising Activity in Commercial Real Estate

Commercial real estate transactions are showing signs of recovery, with increased buying and selling activity across the U.S. However, economic uncertainty and stable interest rates continue to pose challenges for some deals. According to data from Avison Young, 12,458 transactions totaling $182.4 billion were completed in the first half of 2025 — a significant increase compared to the same period in 2024. The dollar volume rose by 15.2%, while the number of transactions increased by 25.2%.

Multifamily and industrial properties dominated the market, contributing 35.4% and 28.4% of the total transaction value, respectively. Despite not being the largest segment, office sales have also started to gain momentum.

Office Market Begins to Rebound

James Nelson, principal and head of U.S. investment sales at Avison Young, noted that office sales are becoming more frequent as companies return to physical spaces. Financial institutions like JPMorgan have been among the first to adopt full-time office policies, and now even tech giants like Amazon are following suit. This shift has created demand for high-quality office space.

Even older office buildings, which may no longer be suitable for traditional office use, are being sold at discounts for conversion into residential or other commercial purposes. In some cases, these buildings are being demolished to make way for new developments. Nelson pointed out that financing for office properties with high vacancy rates remains difficult, but well-leased buildings are starting to attract debt and equity investments.

Johno Harris, senior executive vice president at Lincoln Property Co., mentioned that certain Class A-minus or B-plus buildings in prime locations are beginning to trade. He explained that the market is resetting due to properties either returning to lenders or entering receivership. On a price-per-square-foot basis, these transactions are becoming more attractive.

Office Market Challenges and Outlook

Henry Chin, global head of research at CBRE Group Inc., highlighted that the U.S. office market is expected to reach a 13-year low in 2025, with only 13 million square feet of new office space delivered. However, tenant demand is rising across sectors such as finance, professional services, and artificial intelligence. These tenants prefer the most modern, amenitized, and well-located buildings, which are becoming increasingly scarce due to limited new construction.

For Class B and C office properties, which are often vacated in favor of newer options, some investors may see opportunities, especially when loans on these properties mature. However, challenges remain for investors, including high 10-year Treasury yields and limited capitalization-rate compression in 2025.

Impact of Tariffs and Investor Confidence

Chin noted that the introduction of new tariffs in the second quarter introduced uncertainty about their impact on commercial real estate. While trade policy remains unpredictable, some investors are gaining confidence and are ready to move forward on deals. Additionally, there is a large amount of "dry powder" — uninvested capital — available in the market.

CBRE forecasts a 10% growth in deal volume for 2025 compared to the previous year, though this projection could be stronger if the 10-year Treasury yield declines. The firm also expects a more dramatic 19% increase in office investment activity in 2025.

Companies Becoming Their Own Landlords

Some tenants are choosing to become landlords, purchasing properties they previously leased. Notable examples include Pacific Gas & Electric Co.'s $906 million purchase of its Oakland headquarters and Apple Inc.’s acquisitions in Cupertino and Sunnyvale, California.

Erik Edeen, principal and senior director of U.S. investment sales at Avison Young, explained that users are not driven by the same return metrics as traditional investors. These purchases often fall below the $1,000-per-square-foot threshold, indicating a different approach to real estate investment.

This trend is not limited to the office market. Industrial and retail users are also buying properties they once leased, often due to rising rents and the desire to avoid future increases. Prada’s recent purchase of its Fifth Avenue space is another example of this shift.

Strong Expectations for the Second Half of 2025

Investment sales professionals anticipate a strong second half of 2025. Edeen mentioned that eight major office deals worth $3.5 billion are currently in contract in New York, some involving institutional buyers who had previously avoided office acquisitions.

Nelson noted that 57% of office deals in the first half of the year involved private investors, while only 19% were institutional. In contrast, institutional groups accounted for 36% of dollar volume in 2019. Institutional investors typically make large transactions, and their participation can significantly influence the market. Once a few of these players re-enter the market, it could trigger broader dealmaking activity.