CRE transaction activity rises 13% as debt costs climb

Reported commercial real estate transaction activity rose 13% in the third quarter from the second, according to the latest Debt Market Survey from the Commercial Real Estate Development Association Research Foundation, formerly the NAIOP Research Foundation. All-in borrowing costs rose across nearly every property and product type over the same period.

Lenders widened spreads on ground-up projects across nearly every loan product. Construction financing quotes rose especially sharply in multifamily and industrial projects, Connect CRE reported on Nov. 12. The survey draws on Altus Group's quarterly polling of CRE borrowers and lenders.

For allocators comparing CRE debt funds, the spread widening resets pricing on new originations rather than on the existing book. A construction loan quoted this quarter carries a wider spread than a comparable loan made earlier in the year, so a fund's blended spread depends on the vintage mix of its holdings and how fast older loans repay.

Connect CRE described the report's picture as an active but increasingly expensive financing market. "Lenders stayed active in the third quarter even as the Fed raised rates for the first time since 2023 and Treasury yields climbed," said Marc Selvitelli, president and CEO of CREDA. "Quote volume increased and capital remains available across property types. Borrowers are paying more, but they are not being shut out."

Volume held up while the price of debt rose on nearly every product, including the ground-up construction where repricing was sharpest. Whether transaction activity keeps rising as those spreads reach development budgets is the open question for the fourth quarter.