Tariffs Bring Largest Decline In CRE Confidence Since COVID

Some of the biggest guns in commercial real estate have spoken in the wake of President Trump’s tariff announcements, and their views of the impacts on CRE financing and the economy are bleak.
The 1Q 2025 Board of Governors Sentiment Index nosedived 30.5% as a result, from 126.5% in 4Q 2024 to 87.9% this quarter– the second largest drop in confidence on record. That was exceeded only by the plunge caused by the pandemic in 1Q 2020.
The survey is conducted by the CRE Finance Council (CREFC), which represents the industry. Its Board of Governors comprises over 50 senior executives from every sector of the CRE lending and mortgage-related debt investing markets, and 90% of them responded to the survey.
“The precipitous decline [of the index] reflects growing concerns over economic uncertainty triggered in large part by recent trade policies that have led to heightened market volatility,” CREFC stated. “Eight out of nine survey questions reflected sharp sentiment reversals, underscoring a significant deterioration in industry outlook within just one quarter.”
That was evident in responses to a question about how the U.S. economy will perform in the year ahead compared to 2024. Those expecting better conditions — 7% — plummeted steeply from the 42% who expected them in 4Q 2024, while 80% expected worse conditions (up from 12% in 4Q24).
In another decisive shift, 59% of respondents now expect negative impacts from Federal government legislative and regulatory actions on CRE finance-related businesses in the next 12 months. That is up from just 2% last quarter. Only 11% expect positive impacts (down from 74%).
On the crucial question of the effects of mortgage rates and cap rates on such businesses, opinion was evenly split, with 30% each expecting positive or negative impacts in the year ahead, while another third were neutral. This suggests divided opinions about whether lower rates might offset other negative factors, according to the report.
Expectations for CRE fundamentals in 2025, like occupancy, rents, and net operating income, also plunged, with 50% expecting worsening conditions (up from 12%) and only 17% expecting improvement (down from 65%).
Borrower demand for CRE and multifamily loans or financing was expected to remain positive, with 87% of respondents predicting demand would increase or stay the same. However, expectations of greater demand fell from 91% in 4Q 2024 to 48% in 1Q 2025.
But transaction activity could drop, as only 35% of respondents expect increased demand for CRE assets (down from 86%) and 20% expect less demand (up from 0%) in the year ahead.
Opinions on liquidity in the CRE debt capital markets were considerably more pessimistic than in the previous quarter, with only 15% expecting better conditions (down from 81%) and 26% expecting worse conditions (up from 0%).
A majority of respondents (35%) now expect trends in CMBS and CRE CLO demand/spreads to impact the performance of all CRE finance-related businesses negatively over the next 12 months (up from 2%), while only 26% expect positive impacts (down from 72%).
The survey also tried to gauge attitudes on other topics.
Three out of five respondents thought the most significant risks to the CRE market were related to geopolitical tensions and trade disputes. Two-thirds thought DOGE’s federal government lease terminations would have moderate negative impacts, with manageable vacancy increases and slightly higher cap rates; 20% anticipated severe impacts on both counts.
Among respondents who answered after the Trump tariffs were announced, 60% were either very concerned or extremely concerned about their impact on construction costs and CRE development. However, “It is not unreasonable to expect some of the proposed tariffs will be reversed,” one said.
As a result of the tariffs, just over half of respondents (52%) anticipated a moderate decline in CMBS issuance activity through the end of the year, in light of recent market uncertainty and wider credit spreads, with 37% expecting it to remain stable.
One respondent may have put it best when commenting on future CRE market volatility and uncertainty. “The most astonishing set of unknown unknowns as we have experienced in my professional life…I don’t have a clue,” one wrote.