Commercial real estate finance sentiment took a sharp turn in the first quarter, as geopolitical turmoil tied to the Iran war wiped out months of improving outlook, even as underlying demand for capital and assets remains firm.
The CRE Finance Council’s Board of Governors Sentiment Index fell 20.2% quarter-over-quarter to 100.1, down from 125.4 in the fourth quarter, erasing roughly three-quarters of gains and returning the index to its 4Q 2017 baseline. The decline was broad-based, with all nine core components weakening, led by sharp pullbacks in views on interest rates, liquidity, overall industry sentiment and the economic outlook.
The shift reflects a market recalibrating quickly to a more volatile macro backdrop. A majority of respondents, 54%, now expect the U.S. economy to perform worse over the next 12 months, a sharp jump from just 14% in the prior quarter. Interest rate expectations saw the most dramatic reversal, with only 7% anticipating a positive impact on CRE finance businesses, compared to 69% just three months earlier.
Liquidity expectations also deteriorated meaningfully. While most respondents (58%) now expect conditions to remain unchanged, nearly a quarter foresee further tightening, marking a significant shift from late 2025, when optimism about improving liquidity was widespread. Policy expectations followed a similar trajectory, with sentiment cooling as fewer respondents anticipate a positive impact from federal actions.
Yet, beneath the weakening sentiment, core demand drivers remain intact. Forty-one percent of respondents still expect commercial real estate fundamentals to improve over the next year, while 61% anticipate stronger investor demand and 71% expect increased borrower demand for financing. The latter remains the strongest reading in the survey, reflecting ongoing refinancing needs and continued acquisition activity.
“The 20% decline in the index tells us that respondents are recalibrating expectations across the board,” said Lisa Pendergast, president and CEO of CREFC.
“But the underlying demand signals remain constructive: borrowers still need to refinance, investors are still looking to deploy capital, and fundamentals outside of office are holding.”
Topical responses, which are not factored into the index score, point to a market increasingly focused on financing conditions and risk management rather than a halt in activity. Most respondents expect the geopolitical shock to keep borrowing costs elevated, while a smaller share anticipates a pause in transactions as investors wait for clarity.
Refinancing risk remains concentrated in lower-quality and transitional office assets and expectations for distressed resolutions remain widely dispersed, underscoring continued uncertainty.
Source: “CRE Finance Sentiment Reverses as Geopolitical Shock Erases Months of Gains”
