Global Investors Reassess U.S. Commercial Real Estate Exposure

The dynamic commercial real estate landscape of New York City faces new challenges and opportunities.

News Summary

International investors are increasingly reevaluating their investments in U.S. commercial real estate due to concerns over tariffs and trade tensions. This shift in sentiment is expected to affect market liquidity and property prices. Distress levels in the sector have risen significantly, and while there are signs of recovery in certain segments, the construction pipeline is contracting. Investors remain cautious, focusing on risks associated with liquidity, distressed assets, and interest rates.

New York City – Global investors are increasingly reconsidering their exposure to U.S. commercial real estate (CRE) amid rising concerns over tariffs and their potential impact on the market. This shift signals possible changes in investment patterns, liquidity, and property prices across the United States.

Reassessment of U.S. CRE Investment

As the largest market for commercial real estate worldwide, the U.S. has historically accounted for approximately 38% of global transaction activity over the past decade. Recent trends indicate that many international investors are pulling back from cross-border investments, particularly in sectors like industrial warehouses and central business district offices in prominent gateway markets such as New York City. This pullback is primarily driven by uncertainties related to tariff policies and potential economic repercussions, prompting investors to manage heightened risk levels.

Potential Impact on Property Liquidity and Prices

Analysts warn that a prolonged decline in cross-border capital inflows could significantly reduce the liquidity of U.S. properties. Reduced investment activity is expected to affect property valuations and transaction volumes, with markets experiencing shifts in pricing dynamics. Despite growing caution, experts project a high probability of property value growth in 2025, though the volatility stemming from tariff policies remains a concern.

Current Market Conditions and Economic Indicators

During the first quarter of 2025, the U.S. economy experienced a slight contraction of 1.3% in gross domestic product (GDP). This decline was mainly due to increased imports prior to tariff implementations and a reduction in government spending. Meanwhile, the employment landscape showed some resilience, with employment rising by over 520,000 jobs early in 2025 and the unemployment rate edging up by 10 basis points to 4.2%.

Sector-Specific Performance and Activity Levels

In the commercial real estate sector, office leasing activity surged in the first quarter, increasing 18% quarter-over-quarter. This uptick indicates a recovery or renewed optimism, as firms begin renewing leases earlier than usual. Conversely, the retail sector faced challenges, with retail availability increasing slightly to 4.8% and negative absorption trends impacting key retail spaces.

Construction activity has slowed, especially in retail, where completion volumes are at their lowest in more than a decade due to rising costs and material shortages. This contraction signals a tighter pipeline for new developments and further emphasizes shifting investment priorities toward more resilient sectors.

Financing and Lending Dynamics

As many commercial real estate loans mature — with over $1 trillion expected to come due by the end of 2026 — private credit markets are playing a crucial role in providing funding. Investors and lenders are navigating increased interest rates, which pose challenges for borrowers seeking refinancing, thus prompting a reassessment of borrowing strategies.

Despite these headwinds, investments continue to flow, especially into multifamily and industrial properties. Meanwhile, interest in retail and office assets is shifting, reflecting evolving market fundamentals and investor sentiment.

Capital Flows and Market Outlook

In April 2025, there was a noteworthy influx of capital into the U.S. commercial real estate sector, with forecasts suggesting investment volumes could rise by as much as 8% this year. This suggests that, despite uncertainties, investor appetite remains strong for certain property types.

Meanwhile, the bond market’s response to macroeconomic volatility, including concerns over budget deficits, introduces additional risks. Still, both traditional and private lenders are actively competing for lending opportunities, creating a dynamic and competitive environment for new investments and refinancing efforts.

Summary and Future Considerations

While the U.S. commercial real estate market faces challenges from tariff policies and capital flow adjustments, prospects for property value growth and transaction activity remain positive for 2025. However, market participants are closely monitoring economic indicators, credit conditions, and policy developments, which will influence the sector’s trajectory in the coming months.