The U.S. commercial real estate (CRE) sector is experiencing stagnation, as highlighted in the Federal Reserve’s latest Beige Book released on June 4, 2025. The report, which compiles anecdotal information from business contacts across the 12 Federal Reserve Districts, indicates that nine districts reported either stagnant or contracting economic activity in May. The CRE sector, in particular, has seen largely unchanged home sales and a decline in construction activity.
Elevated economic and policy uncertainties have led businesses to delay hiring and investment decisions, contributing to a cautious outlook for the CRE market. The report notes that “on balance, the outlook remains slightly pessimistic and uncertain,” with widespread expectations of accelerating prices and uneven economic performance across regions.
Tariff-related uncertainties have been a significant factor in the current economic climate. The Beige Book highlights that unpredictable tariff policies have caused businesses to hesitate in making investment decisions. A commercial real estate agent in South Carolina mentioned that deals for industrial facilities have been falling through due to companies being unable to navigate the complexities of the tariff environment.
The labor market has remained largely flat, with variations across sectors and locations. While some districts reported layoffs, they were not widespread, and wage pressures generally eased. The report also notes that consumer spending decreased, and businesses delayed hiring, further contributing to the stagnation in the CRE sector.
In the Twelfth District, which includes states like California and Washington, economic activity slowed slightly during the April to mid-May reporting period. Employment levels were generally stable amid some layoffs and attrition without replacement. Conditions in residential and commercial real estate markets softened slightly, while financial sector conditions were largely unchanged.
The Federal Reserve has kept its policy rate in the current 4.25%-4.50% range since December and is widely expected to leave it there for another few months while its policymakers gauge the impact of U.S. trade and other policies on inflation … Analysts and Fed policymakers alike anticipate both inflation and labor market data to deteriorate … albeit unevenly.
As the CRE sector grapples with these challenges, stakeholders are closely monitoring the Federal Reserve’s policy decisions and the broader economic indicators to navigate the uncertain landscape. The upcoming interest-rate meeting scheduled for June 17-18 will be pivotal in determining the direction of monetary policy and its implications for the CRE market.