Why Does it Matter?
The Federal Reserve’s latest messaging suggests interest rates are not coming down anytime soon. For commercial real estate, that removes one of the key assumptions many investors have been underwriting around: near-term rate relief.
In a recent Bloomberg interview, Federal Reserve Vice Chair for Supervision Michael Barr said rates may need to remain steady for some time as inflation risks persist.
The takeaway is straightforward. The Fed is not in a rush to cut.
The Implications
Debt remains expensive, and underwriting remains conservative. Lenders are still sizing deals off higher rates, which continues to limit leverage, reduce loan proceeds, and put pressure on refinancing across maturing assets. Until borrowing costs move meaningfully lower, capital will remain selective and disciplined.
With no immediate rate relief, valuation expectations are still adjusting. Sellers anchored to prior pricing are facing resistance, while buyers continue to underwrite higher return thresholds. The result is a persistent bid-ask gap, with fewer transactions clearing at current expectations.
Transaction activity reflects this dynamic. The “wait for cuts” strategy that defined much of the past year is becoming less viable, but that hasn’t translated into broad market liquidity. Instead, activity is more targeted with fewer widely marketed deals, more off-market or relationship-driven transactions, and increased participation from well-capitalized buyers.
At the same time, operations are playing a larger role in value preservation. With capital markets constrained, leasing performance, tenant quality, and consistent cash flow are doing more of the work. Assets with strong fundamentals are holding up better than those reliant on future upside or aggressive assumptions.
What We’re Seeing
Across the market (including trends reported by firms such as CBRE, JLL, and Colliers) activity reflects a slower, more deliberate environment:
-Longer timelines from LOI to closing as financing takes more time to structure and secure
-Increased retrades tied to shifting debt terms and lender requirements
-Greater lender selectivity, particularly for office assets and value-add deals
-Wider spreads between buyer and seller expectations, slowing transaction volume
-Stronger leasing activity relative to investment sales across most asset classes
In the Greater Boston area, this dynamic is especially visible. Leasing is moving, while sales remain more measured.
The Broader Context
The Fed’s position reinforces a longer adjustment cycle rather than a near-term rebound.
Capital is more disciplined, underwriting is tighter, and investors are prioritizing durability over growth assumptions. This is less a downturn than a recalibration.