The commercial real estate market experienced a significant shift in October, marking the first time in 2025 that transaction volume saw negative year-over-year growth. This slowdown reflects a growing stalemate between buyers and sellers, largely driven by persistent high interest rates and economic uncertainty.
Despite the dip, October remained an active month for property sales, with $24.4 billion in transactions. This figure represents about 70% of the sales volume recorded in October 2019, indicating a market that, while slower, is far from dormant. The overall dollar volume for the year remains higher than last year, but the pace of growth has notably decreased since 2023.
Key Takeaways
- October 2025 saw the first negative year-over-year transaction volume in commercial real estate since early 2024.
- A stalemate between buyers and sellers is attributed to high interest rates and economic uncertainty.
- Industrial and multifamily sectors led the top deals, despite a pullback in multifamily volumes.
- The hotel sector showed a 6% growth in deal volume, recovering from a negative third quarter.
- Office properties continue to face challenges, with conversions and discounted sales becoming common.
Market Momentum Slows Amid Uncertainty
Commercial real estate began 2025 with strong momentum after the pandemic, but this year has presented new challenges. The reversal in October's transaction volume growth is a clear indicator of these headwinds. After seeing positive growth in early 2024 and approaching pre-Covid levels by the end of last year, the market's trajectory has become more complicated.
Kevin Fagan, head of CRE capital market research at Moody’s, commented on the situation. He stated,
“More than an imminent downturn in the CRE capital markets, the slip to negative growth in October 2025 reflects the stalemate going on between buyers and sellers.”He further explained that the recovery from 2023's low volumes has been extended by consistently high interest rates and broader economic and policy uncertainties.
October Sales Snapshot
- Total Sales: $24.4 billion
- Comparison to 2019: Approximately 70% of October 2019 sales
- Growth Trend: First negative year-over-year growth since early 2024
Sector-Specific Trends Emerge
While the overall market faces challenges, specific property sectors are showing varied performance. Industrial and multifamily properties continue to dominate the top 50 commercial real estate deals. However, the multifamily segment experienced a significant slowdown in October.
The multifamily sector saw a 27% pullback in October compared to 2024. This comes after four months where volumes were higher than pre-Covid levels. Despite this recent decline, many multifamily buildings are still trading at a premium to their previous sales, suggesting underlying strength in the asset class.
Hotel Sector Shows Resilience
In contrast to other sectors, the hotel industry demonstrated surprising growth. It was the only sector to improve in deal volume compared to last year, recording a 6% growth after a negative performance in the third quarter. This rebound highlights a potential shift in investor confidence towards hospitality assets.
A notable transaction in the hotel sector was the sale of The New York Edition hotel at 5 Madison Avenue. The Abu Dhabi Investment Authority sold the property for $231.2 million to the Kam Sang Company. This high-value sale underscores the continued interest in prime hotel properties, especially those with historical significance.
Historic Conversions
The New York Edition hotel building has a rich history. Originally known as the MetLife Clock Tower, it was the world's tallest building from 1910 to 1913. This conversion from office to hotel reflects a broader trend seen in New York City, where older office buildings are being repurposed. The Woolworth building, another former tallest building, was converted into residential units around 2013.
According to Kevin Fagan, these buildings are "nearly worthless as offices, but extremely valuable as a hotel and an apartment building, respectively." This highlights the strategic value in converting underperforming office assets into more in-demand property types.
Office Market Navigates Discounts and Conversions
The office sector continues its bumpy recovery. The narrative for office properties often involves either significant discounts or strategic repurposing. This trend became evident in October's major transactions.
The top office sale in October involved Sotheby's headquarters. It was acquired by Weill Cornell, suggesting a likely conversion or repurposing into a healthcare or medical office facility. This type of conversion is becoming a common strategy to unlock value from struggling office assets.
Another significant deal saw New York Life purchase a distressed Manhattan office building from BGO at almost half its last sale price from 2015. This transaction illustrates that institutional investors are still interested in office properties, provided they come with a substantial discount.
"It shows there is institutional interest in offices sold at discounts, reinforcing the long-term value floor for office buildings in good markets, and the recognized enduring utility of such properties," Fagan explained.This suggests that while the office market is challenging, well-located properties sold at attractive prices can still draw significant investment, signaling a long-term belief in their utility.
The overall commercial real estate landscape remains complex. Investors are navigating a market defined by high interest rates and economic uncertainty. While some sectors like hotels show signs of recovery, others like traditional offices require creative solutions such as conversions or discounted sales to attract buyers. The coming months will reveal whether the current buyer-seller stalemate can be resolved, allowing for a more consistent recovery across all property types.
