Avoid the FOMO: The CRE News You Need to Know—July 28

The Latest Data, News, and Analysis Impacting the Commercial Real Estate Market

Last week, the U.S. and Japan reached a milestone agreement slashing tariffs on autos and industrial goods from 25% to 15%. In return, Japan pledged to invest approximately $550 billion into U.S. industries. This breakthrough sent Japanese markets soaring and injected fresh momentum into U.S.–EU trade talks, which were finalized over the weekend. Those negotiations closed in on a baseline 15% tariff pact, with risks of steep levies (up to 50%) on steel and autos. Tariffs are top-of-mind for CRE professionals given the uncertainty they are injecting into the near-term forecast. In LightBox’s Mid-Year CRE Market Sentiment Survey, 23% of respondents said tariffs are expected to have the greatest impact on H2 2025 dealmaking—second only to interest rates (47%). On last week’s edition of the LightBox CRE Weekly Digest podcast, Rebecca Rockey, Chief Economist and Global Head of Forecasting at Cushman & Wakefield, noted: “Most economists are assuming that over the next 6–12 months, as deals are struck, that the tariff rate will come down pretty rapidly and that this period of uncertainty and slowness is finite.” The impacts will vary across CRE asset classes, and “there’s no doubt that retail and industrial are the most directly exposed to tariffs. We’re already seeing more softness creeping into retail demand data.” Industrial demand projections are also being revised downward in response to the anticipated impact of tariffs.

The LightBox Take: This week is the busiest of the quarter for corporate earnings and other economic data, which may reveal how manufacturing and consumer-sensitive firms have weathered tariffs so far. Tariff turbulence will continue to be an ongoing story in Q3 and beyond, given the potential to impact retail spending, inflation, supply chain costs, leasing volumes, and business earnings. Short-term uncertainty may weigh on transaction volume and development, but longer-term fundamentals in underbuilt segments like retail may offer opportunity once clarity returns.

The LightBox Appraisal Index rose to 63.9 in Q2 2025, marking the highest reading since Q3 2022 and reflecting continued resilience in lender-driven appraisal activity amid macroeconomic uncertainty, according to the LightBox Q2 Appraisal Snapshot report. Appraisal volume reached $62.2M, up 6% quarter-over-quarter and 14% year-over-year, fueled by modest growth in loan originations and refinancing. While appraisal fees rose for the third straight quarter to an average of $3,437, turnaround times improved slightly to 14.1 business days, continuing a downward trend from earlier highs. On an asset class basis, retail and industrial properties accounted for more than 42% of volume, with office and multifamily each comprising roughly 16%. Despite ongoing volatility, particularly tied to trade tensions and rate uncertainty, the Index, which draws from more than 1,200 banks and credit unions across the U.S., demonstrates that lenders remain active but have adopted a cautious stance. While CRE pricing remains uncertain and the bid-ask gap persists, appraisal momentum is growing slowly with all eyes on the Fed for signs of the first rate cut of the year to unlock broader acceleration.

The LightBox Take: The appraisal market’s steady gains in Q2 underscore the cautious momentum building in the CRE lending sector.  If the Fed delivers a rate cut later this year, expect a jolt to valuation pipelines. Until then, market players will continue treading carefully. The coming months’ appraisal activity—and the next CRE Activity Index reading—will reveal if momentum is turning into sustained traction. According to appraisers who responded to the LightBox Mix-Year CRE Sentiment Survey, the most anticipated trigger for market acceleration is a potential Fed rate cut. If it materializes, possibly as early as Q3, it could open the floodgates for sidelined capital and boost valuation pipelines heading into 2026.

Blackstone, the world’s largest CRE owner, signaled growing optimism that CRE is approaching a long-awaited turning point. While the firm slowed investment activity in Q2, deploying 37% less capital into CRE than the same period last year, it raised $7.2B in new CRE capital, up 22% year over year. In its Q2 earnings call, Blackstone leaders pointed to improving fundamentals, interest rate cut expectations, and policy clarity from the recently passed federal tax and policy package as critical drivers nudging the market toward recovery. CEO Stephen Schwarzman reaffirmed that Blackstone called the bottom of the CRE cycle 18 months ago. Strategically, the firm is focusing on strong markets for data centers, logistics, and rental housing assets, which now account for roughly 75% of its global equity portfolio and 90% of its real estate credit platform. While acknowledging that the recovery wouldn’t be V-shaped, Blackstone believes the decline in new supply, lower cost of capital, and clearer tax policy environment are aligning in CRE’s favor.

The LightBox Take: Blackstone’s growing optimism could be a bellwether for a CRE rebound in late 2025. Its Q2 fundraising surge and confidence in a stabilizing market suggest institutional capital is preparing to re-enter. With fresh policy clarity and expected rate cuts, the investment landscape is improving. As one of the first firms to call the bottom, Blackstone’s stance may help shift broader sentiment. Supporting this, the LightBox CRE Activity Index rose 8% in June to 113.9. Whether that momentum holds will become clearer in the coming months as the market watches for signs of acceleration from major players like Blackstone.

The Trump administration’s proposed $27 billion reduction to federal rental assistance, including a 44% cut to HUD’s budget, is already sending shockwaves through the affordable housing ecosystem. Developers, lenders, and policymakers are concerned that a rollback, along with proposed changes that would turn Section 8 into state block grants and impose two-year term limits on aid, could destabilize the housing finance system. Financing for new affordable housing projects is already stalling, as lenders pull back amid uncertainty over the long-term viability of projects given the uncertainty of consistent federal backing. While the recent federal shift toward making Opportunity Zones permanent offered a policy win, industry leaders rely on stable operating subsidies to support affordable housing development.

The LightBox Take: The proposed HUD cuts could impact affordable housing projects, especially in supply-constrained markets like New York City where developers rely on stable rental subsidies to underwrite projects. If enacted, these changes would likely reduce the volume of new affordable projects in the near term, as financing models become harder to underwrite without predictable subsidy streams. However, the pressure could also accelerate state- and city-level innovation, prompting more localized funding mechanisms, public-private partnerships, and use of tools like LIHTC and Opportunity Zones.

In 2025, office-to-apartment conversions have surged to a record 70.7K units, tripling since 2022 and marking a 28% year-over-year increase. These conversions now make up 42% of all adaptive reuse projects, reflecting a major shift in how urban real estate responds to persistent office vacancies and a deepening housing crisis. The top three metros leading this trend are NYC, Washington, D.C., and Los Angeles. In NYC, projects like the gut-renovation of the 33-story former Pfizer HQ into approximately 1,600 retail apartments, are driving a 59% year-over-year increase. Conversions of newer office stock (i.e., 1990 to 2010 vintage) are also growing, signaling broader feasibility across asset classes. Yet, despite record pipeline numbers, completions remain limited due to high costs, regulatory barriers, and construction delays. As cities roll out more incentives, adaptive reuse is becoming a mainstream solution to high office vacancies coupled with the challenge of urban housing shortages.

The LightBox Take: With CBD office vacancies still high, adaptive reuse is emerging as a viable path forward, especially in markets facing housing shortages. Feasibility depends on zoning, financial viability, and local incentives. As the Pfizer HQ conversion in NYC shows, large-scale projects are possible when public policy and private capital align. Cities that streamline approvals, reduce costs, and support conversions will be best positioned to lead this next phase of CRE reinvention.