How Sticky Inflation and Fed Policy Are Reshaping CRE Financing in 2025

SKIP AHEAD TO

• Inflation’s Enduring Impact on CRE
• Fed Policy: Higher for Longer
• Investor & Lender Strategies Evolve
• What This Means for CRE Stakeholders
• Conclusion

The commercial real estate (CRE) landscape in 2025 is being profoundly shaped by persistent inflation and the Federal Reserve’s ongoing policy decisions. As the Fed maintains elevated interest rates in an effort to curb inflation, CRE professionals across the country are forced to reassess their financing strategies and investment outlooks.

In such a volatile and fast-evolving climate, access to high-quality, granular leasing and transaction data is more crucial than ever. Only with timely insights into prevailing rents, cap rates, and loan terms can industry stakeholders accurately benchmark deals and navigate both risk and opportunity. CompStak empowers CRE owners, investors, and lenders to make data-driven decisions, providing a trusted lens into the nuances of local and national market dynamics, all essential for structuring successful financing outcomes amid uncertainty.

Inflation’s Enduring Impact on CRE

Sticky inflation—persistent, above-target price growth—has led to significant cost pressures in CRE. Construction expenses, operating costs, and tenant improvement allowances have all trended upward, reducing margins for landlords and making underwriting new deals more complex.

CompStak year-over-year market rent growth for office, industrial, retail in NYC, LA, Chicago. 

Since Q4 2020, the average work value for Manhattan Class A new leases has increased by 25.1%. This rise reflects several factors, including heightened tenant leverage amid a softer office market following the shift to remote work, as well as sustained demand for high-quality office space among active tenants.

Additionally, escalating construction costs have contributed to the increase. Initially driven by post-pandemic supply chain disruptions that pushed up the price of materials, construction costs are now being further inflated by rising tariffs on many commonly used building inputs.

Over the same period, the Consumer Price Index (CPI) for all items rose by 22.9%, while the Producer Price Index (PPI) for net inputs to nonresidential construction (goods only) surged by 40.7%. These increases reflect broader inflationary pressures that have also contributed to the rise in average work value in the Manhattan office market.

Fed Policy: Higher for Longer

The Fed’s decision to keep rates higher for an extended period directly impacts loan underwriting, debt service costs, and investor risk appetite. Floating-rate loans and maturing debt now come with daunting refinance terms, tightening cash flows and pushing some owners to reconsider their portfolios.

With CompStak Portfolios, you can:

• Aggregate Key Lease and Property Metrics in One Place
• Compare Portfolio Performance to the Market
• Identify risks and opportunities instantly

Investor & Lender Strategies Evolve

• Conservative Underwriting: Lenders are demanding lower loan-to-value ratios and higher debt service coverage.
• Emphasis on Prime Assets: Investors are focusing on properties in top-performing sectors (e.g., industrial, multifamily) and core urban markets less susceptible to downsizing.
• Creative Structures: Preferred equity, mezzanine debt, and joint ventures are becoming more common as traditional financing tightens.

What This Means for CRE Stakeholders

• Owners: Prepare for short-term cash flow pressure; focus on expense management and lease re-negotiations.
• Buyers: Factor higher rates into underwriting and seek out flexible lenders.
• Lenders: Increase diligence on borrowers’ rent rolls, expense ratios, and tenant credit.

Conclusion

The interplay between inflation and Fed policy has created a challenging, yet dynamic, CRE financing environment in 2025. Those who embrace data-driven strategies and adjust to market realities will be best positioned for the next phase of the cycle.

Whether you’re planning your next acquisition, refinancing maturing debt, or adjusting to new rent trends, CompStak’s comprehensive database of verified lease comps, sale comps, loan data, and property insights puts reliable market intelligence at your fingertips. In these times, leveraging CompStak is not just an advantage, it’s a necessity for any CRE stakeholder who wants to stay ahead of the curve and capitalize on emerging opportunities in the evolving landscape.