This content was originally published by Bisnow: “The Counselors Of Real Estate’s Jim Costello On How Commercial Real Estate Is Faring So Far In 2025“

With inflation coming down and deal volume recovering, the start of 2025 was a “very favorable place to be,” said Jim Costello, chief economist at MSCI Real Assets research and chairman of The Counselors of Real Estate‘s Economic Advisory Council.

“There was a ton of optimism in the sector early this year,” Costello said. “It was starting to look like we beat the ‘stay alive until 2025’ mantra. Deal volume and prices were climbing relative to last year. Many thought we were due for a turnaround very soon because we had some momentum going.”

The past several weeks, however, have left some commercial real estate investors feeling like the rug has suddenly been pulled out from under them, Costello said.

Bisnow spoke with Costello about what’s next for commercial real estate in 2025, including how federal policy changes will impact the way deals get done, how lower interest rates may affect the market and what asset classes are seeing the most activity.

President’s Tariff Jumpscare

Since April 2, when President Donald Trump unveiled sweeping tariffs on nearly 60 countries around the globe, commercial real estate professionals nationwide have been trying to decipher how their industry will be impacted in the coming months.

Experts fear that these tariff hikes will likely have profound effects on construction material costs and the supply chain. If disturbed by higher prices and longer lead times, commercial real estate professionals also are worried that the capital that’s finally started to get off the sidelines may pull back, leading projects to come to a screeching halt.

Costello added that the initial tariff response brought the 10-year Treasury down to 4% a few weeks ago, signaling widespread fear of an economic downturn. Since then, this rate has risen, but it’s still down from a high of 4.8% earlier this year — when investors expressed more confidence in the way the market was headed.

“The initial tariff reaction was one of, ‘Let’s jump into the safety of bonds,’ but then, over time, other groups have started pulling out of bonds,” he said. “One of our biggest exports is the 10-year Treasury, so if countries are not as easily able to sell goods into the U.S., they don’t need as many dollars. It’s all been tricky.”

Higher-For-Longer Interest Rates

Even among the commotion spurred by Trump’s new tariff policies, commercial real estate professionals are eagerly awaiting to see what the Federal Reserve will do with interest rates.

Interest rates held steady after the Fed’s last meeting in March, but with experts anticipating two cuts this year, many are anxious to see what move the Fed will make at its next meeting in early May.

Costello added that while low interest rates will be welcomed by many commercial real estate professionals, they are only a good thing if the economy is performing well with little uncertainty. Recently, some of the nation’s most influential companies, such as Goldman Sachs, have increased their predictions of a tariff-induced recession.

“A low interest rate environment, if you have strong economic growth, is helpful for real estate. But just low interest rates in and of itself doesn’t do anything for you,” he said.

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