Avoid the FOMO: The CRE News You Need to Know—June 9

Every week, LightBox analysts carefully select the most impactful economic news, market metrics, in-house data and analysis, and transactions shaping the CRE industry.  

June 9^th edition:

1. Fed’s First Post-Tariff Snapshot Reveals Caution Across CRE
2. First Monthly Decline in CRE Deal Activity in May
3. Climate Resilience Concern Rises as Hurricane Season Gets Underway
4. Office Conversions and Demolitions Outpace New Supply for the First Time
5. May Jobs Report Makes June Rate Cut Unlikely

The Federal Reserve’s latest Beige Book and new U.S. construction spending data—both out last week— sent a clear, cautionary signal: The economy is treading carefully amid growing caution and economic fatigue. In the Fed’s first post-tariff Beige Book since the April 2 trade announcement, businesses reported softening consumer demand, cautious hiring, and flat CRE investment and lending volume with longer closing timelines. Loan balances at District financial institutions decreased across all lending categories, with construction/land development experiencing the largest decline. Office leasing was a mixed bag, while investment sales lagged, and foreign capital pulled back. Construction activity slowed due to rising costs and policy uncertainty, and banks tightened lending—especially in CRE and development financing.

The latest Fed assessment from its 12 Districts across the U.S. aligns closely with just-released Census Bureau data pointing to a 0.4% construction spending decline in April—the third consecutive monthly drop and the first year-over-year decline since 2019. Private residential and nonresidential construction both eased, a sign of the growing hesitation among property owners driven by tariff unpredictability and rising materials costs. Outlays on multi-family housing units dipped 0.1% in April, and investment in private non-residential structures like offices and factories eased 0.5%. Home construction is also being constrained by an unsettled economic outlook.

The LightBox Take: The synchronized slowdown reported across the 12 Fed districts and the latest round of construction spending data point to a more cautious stance. CRE lending standards are tightening, especially for projects vulnerable to trade disruptions and cost inflation. With rates uncertain and tariffs disrupting demand and supply chains, investors are retreating to stable asset classes and well-capitalized sponsors. Deals are slower to close, risk tolerance is shrinking, and underwriting is more selective. Until federal policy and economic signals stabilize, hesitation will likely define the market.

The LightBox CRE Activity Index—an essential leading indicator of commercial real estate market velocity—dropped to 105.5 in May, down from 109 in April. It marks the first monthly decline of 2025 and hints that early-year momentum may be cooling. While still up 22% year-over-year, the dip suggests growing hesitation among market participants as uncertainty around tariffs, federal deficits, and interest rates intensifies. “After a fast start to the year, May’s Index confirms that the market is starting to tap the brakes. The investment community isn’t retreating, but it is recalibrating. Lenders are becoming more selective, and underwriting timelines are stretching out as everyone reassesses risk,” noted Manus Clancy, head of data strategy at LightBox. The Index is based on real-time data from three core components of CRE deal flow—commercial appraisals, environmental due diligence reports, and new property listings—all of which are fundamental to CRE transactions and refinancing. This makes the Index a powerful barometer of future activity and identifying turning points in market momentum. Back in September 2024, the Index was the first signal that CRE was crawling out of its post-2022 funk. The May reading is a sign that the CRE market may be flashing yellow again as buyers and sellers take a step back amid macroeconomic headwinds. The good news: the decline wasn’t severe.

The LightBox Take: While the CRE activity behind the May Index is still solid—new listings and underwriting are holding up—the market is clearly shifting into a lower gear. Buyers and lenders are proceeding more conservatively, and adjusting strategies in light of volatile rates, pricing pressures, and shifting demand. The Index remains a valuable pulse-check: If June data confirms this slowdown, it may mark a turning point. At least for now, dealmaking hasn’t stopped, but the path forward is less predictable. The next test will come in June, when the Index will demonstrate whether policy-driven uncertainty continues to put the brakes on CRE activity—or if the market can shake it off.

As climate risks intensify and insurance costs skyrocket, CRE owners are being forced to focus on property resilience—not as an added cost, but as a strategic consideration. Building climate resilience into asset management is a trend quickly gaining traction. Owners want properties to be worth more when they sell it than when they bought it so value retention measures can have a strong ROI, noted recently by Holly Neber, CEO of AEI Consultants. Given the sharp rise in the frequency and intensity of climate-related weather events in recent years, forward-looking owners are investing in adaptive technologies, smarter capital planning, and sustainability certifications. Benefits go beyond long-term appreciation. The installation of measures like flood barriers, upgraded HVAC, and real-time water sensors also reduce operational costs and minimize downtime. The insurance market is further accelerating change. Rising premiums, deductibles, and policy exclusions are pushing owners to demonstrate their climate risk mitigation efforts—often leading to reduced insurance costs when documented properly. From roof age to HVAC upgrades, integrating resilience into standard operations is becoming a standard best practice.

The LightBox Take: June 1^st marked the official start of what forecasters expect to be a more intense hurricane season than last year—an outlook that heightens the imperative for CRE stakeholders to elevate climate resilience planning. For property assets located in high-risk areas, proactive investments in storm hardening and climate mitigation are increasingly tied to cost control, asset preservation, and underwriting favorability. Owners who embed resilience into their operations are better positioned to weather volatility and outperform peers.

In a new report, CBRE announced that office conversions and demolitions are on pace this year to more than double new office deliveries. More than 23 million square feet of office space is slated for repurposing or teardown, compared to just 12.7 million square feet of expected new supply. This significant supply reduction is helping offset record-high vacancies and could accelerate the office market’s recovery. Conversions to multifamily housing dominate the trend, driven by persistently high demand and favorable rental dynamics. Multifamily vacancy rates sit at just 4.8% versus 19% for office, and average rents have surged over 21% since 2020. Since 2018, over 28,500 multifamily units have been delivered via conversions, with another 43,500 expected. Life sciences conversions have tapered, while hotels now make up 8% of current conversion activity. CBD office markets like Manhattan and D.C. lead in total conversion volume, supported by local incentive programs. Cleveland stands out with the highest share of inventory under conversion at 8.4%, benefiting from its long-standing expertise in adaptive reuse.

The LightBox Take: This is historic and is an outward sign that the real estate markets are starting to slowly rebalance as, for the first time in decades, more U.S. office space is being repurposed into other uses than built. These conversions and demolitions will shrink the office inventory, offering a pressure release valve for sky-high vacancy rates. Still, conversion economics remain challenging. Rising construction costs, the limited supply of viable buildings, labor market shortages, still-high interest rates and local regulatory hurdles mean this trend, while promising, will take time to meaningfully reshape the office market. Nonetheless, the CBRE report offers evidence that office conversion projects are increasingly creating opportunities to balance supply in the office sector and reshape downtowns.

The May jobs report late last week delivered a mixed but sturdy snapshot of the U.S. labor market, balancing stronger-than-expected hiring with unmistakable signs of slowing momentum. Employers added 139,000 jobs—beating forecasts but marking a step down from April’s revised 147,000. The unemployment rate held steady at 4.2%, and wage growth outpaced expectations, rising 0.4% month-over-month and 3.9% year-over-year. Nearly half of job gains came from health care and hospitality, while federal job cuts and softening in manufacturing and retail underscored policy-driven vulnerabilities. Despite the unexpected uptick in hiring, underlying trends flash caution. The labor force shrank by 600,000, jobless totals rose to their highest since 2021, and downward revisions erased 95,000 jobs from earlier months. New jobless claims hit their highest level since October 2024, and continuing claims remain elevated. Layoff announcements through May surged 80% over last year, with the bulk tied to federal workforce reductions and economic uncertainty stemming from tariffs and budget cuts. The Department of Government Efficiency alone has triggered more than 294,000 planned job cuts. While the labor market hasn’t collapsed, hesitation is mounting as employers—particularly smaller firms—appear to be tapping the brakes.

The LightBox Take: Despite calls from President Trump, the odds of a June rate cut are near zero. May’s job gains and rising wages point to a labor market still too firm for the Fed to justify easing, especially with inflation lingering and tariff-related uncertainty clouding the outlook. Layoff announcements are rising, but not yet widespread enough to trigger a policy shift. For CRE, this means borrowing costs will likely stay elevated and underwriting conservative at least through the summer. The Fed is firmly in wait-and-see mode, with July or September now the earliest likely windows for a potential rate adjustment.

Important dates and industry events this week

• Tuesday, June 10
  • NFIB optimism index
• Wednesday, June 11
  • Consumer price index
• Thursday, June 12
  • Initial jobless claims and producer price index

For more insights on commercial real estate data and trends, subscribe to Insights and the CRE Weekly Digest Podcast for commentary and real-time data.  

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