MARKET OVERVIEW
Commercial real estate (CRE) transaction volume has the momentum to exceed $100 billion in the fourth quarter and will mark the third consecutive quarterly improvement. Again, Office transactions led the pack, with Multifamily close behind, CoStar data showed. Avison Young1 reported that Multifamily is the target of over 55% of investment dry powder. Cap rates also held steady from last quarter across the board. Prices in October bounced back in a sign that “commercial real estate markets are finding a floor,” according to CoStar. Delinquencies seesawed down in the third quarter, as did distress sales in October, dropping to a year low of 2%. Industry sentiment2 turned slightly optimistic as the Federal Reserve’s rate cuts fostered more certainty, boosted valuations and reduced the cost of capital. Financiers welcomed the return of institutional and foreign parties to the investor table.
Construction continued to dwindle due to higher tariff-driven costs, yet it strengthened fundamentals for Multifamily, Retail and even Office. By the end of the third quarter, vacancy rates3 slightly declined for Office and Multifamily, and were stable for Retail. An increased appetite for employees to return to the office also helped keep that sector’s demand slightly ahead of weakening employment trends.
Retail boasted the highest annual rent growth3 of the major sectors at 1.9%. But consumers have had their fill of inflation, and moderated holiday spending4 is anticipated. Multifamily and Office landlords prioritized retention, keeping rent3 hikes well below 1%. Industrial absorption rebounded in the third quarter, but speculative deliveries and uncertainty around tariffs’ full impact chilled September rent and vacancy rates.3 However, the future construction pipeline includes more build-to-suit projects, particularly in pockets of demand like small bay warehouses and manufacturing. Furthermore, the abundance of data center development – Q3 leasing matched all of 20245 – is expected to stimulate Industrial demand. Learn more about data center real estate on our Company blog.
A DEEPER DIVE: THE MANUFACTURING SUBSECTOR
Twelve-month transaction volume advanced 26% in Q3 2025 for the entire Industrial sector – but manufacturing property activity alone climbed over 37%, according to CoStar. In addition, spending on manufacturing construction6 is expected to rise in the near term. New supportive policies7, such as bonus depreciation tax breaks, and the push for nearshoring and reshoring are key drivers. So is the need to upgrade aging facilities. The graph below shows regional transaction growth and upcoming manufacturing development.
In the Mid-Atlantic region, despite remarkable transaction activity, future construction is expected to be surprisingly small. It is focused in the Trenton/Philadelphia corridor, reflecting its central infrastructure position.
The Northeast is likely to reflect development on par with more active sales markets. Building is concentrated around Boston’s Interstate 495 semicircle, with some technology expansion and some for possible reshoring.
The Midwest and West had similar activity growth, although the Midwest is garnering more attention. The outskirts of Cleveland and Detroit are attracting defense and reshoring projects. California, particularly the Los Angeles area, is the focus of development in the West due to facility replacement, nearshoring and clean energy expansion.
The Southwest (namely, Houston, Phoenix, Tucson) and the Southeast (especially the Carolinas corridor and Cape Canaveral, Florida) remain inviting spots for technology investment, nearshoring and reshoring, and industry development, due to their open spaces, relatively modern infrastructures and rising labor populations.
WHAT'S NEXT?
Find out how the quarter ends and what’s ahead for CRE in 2026 in Old Republic Title’s next Economic Update.
1 Avison Young, “U.S. multifamily market report Q3 2025.” Reprinted with permission November 2025.
2 NAIOP | Commercial Real Estate Development Association, “NAIOP: Commercial Real Estate Sentiment Increases, Signaling Growing Optimism.” Reprinted with permission November 2025.
3 Copyright © 2025 “October 2025 Commercial Real Estate Market Insights.” NATIONAL ASSOCIATION OF REALTORS®. All rights reserved. Reprinted with permission November 2025.
4 Bisnow, “Retail's Been Resilient In 2025. 'Relentless' Instability Threatens The Holiday Party.” November 2, 2025. Reprinted with permission November 2025.
5 Bisnow, “Led by Oracle, Tech Giants Leased More Data Center Capacity Last Quarter Than in All of 2024.” Reprinted with permission November 2025.
6 Avison Young, “U.S. Industrial Market Report Q3 2025.” Reprinted with permission November 2025.
7 Bisnow, “One Big Beautiful Bill's Passage Launches New Tax Era For CRE.” Reprinted with permission November 2025.
