Global Commercial Property Markets See Slow Recovery as Rates Stay Elevated
Please note that we are not authorised to provide any investment advice. The content on this page is for information purposes only.
The global commercial real estate market continues to struggle with a sluggish recovery, as high interest rates, remote work trends, and tighter lending conditions weigh on investment flows and property values.
Data from the Global Real Estate Finance Association (GREFA) shows that commercial property transactions declined by 12% in Q2 2025 compared to the previous year, with office space and retail segments hardest hit. Only the industrial and logistics sectors showed modest growth, driven by e-commerce and warehouse demand.
Rising interest rates across major economies have had a pronounced effect on real estate finance. Borrowing costs for commercial property developers have risen sharply, with average mortgage rates for institutional buyers now exceeding 6.5% in the United States and 5.2% across the eurozone.
“High rates are limiting refinancing options for developers and pushing down valuations,” said Daniel Porter, chief strategist at Keystone Property Advisors. “Cap rates are expanding, but not fast enough to match investors’ risk appetites.”
Major financial centers like New York, London, and Hong Kong have seen a decline in office occupancy rates, with hybrid work becoming the norm. This has translated into growing vacancies, reduced rental income, and declining investor interest in Class B office buildings.
Retail spaces, particularly in urban cores, are also feeling the pressure. Despite a pickup in consumer foot traffic, many brands are opting for smaller physical footprints and focusing more on omnichannel retail strategies. This has left large-format retail properties with reduced demand and rising default risk.
In contrast, logistics and data center properties have remained resilient. Amazon, Google, and Alibaba continue to invest heavily in fulfillment and cloud infrastructure, lifting demand for industrial zones and long-term leases. However, even these segments are beginning to face tighter financing terms.
On the capital markets side, real estate investment trusts (REITs) have underperformed broader indices in 2025. The global REIT index is down 4.8% year-to-date, with investors pricing in extended monetary tightening cycles and concerns about asset repricing.
Some governments are taking action. The UK and South Korea recently announced targeted tax incentives for property developers focused on affordable housing and mixed-use regeneration. Meanwhile, central banks have signaled caution on further rate hikes, but remain data-dependent.
Looking ahead, analysts suggest that any sustained recovery in the commercial real estate sector will depend heavily on interest rate normalization, a rebound in corporate leasing, and increased investor confidence in property-backed assets.
