Can Fed Rate Cuts Jumpstart Commercial Real Estate’s Comeback?

• Easing effect: Fed rate cuts aren’t helping homebuyers much, but they’re sparking new momentum in commercial real estate deals and refinancing.

• Agent empire: Compass is acquiring Anywhere Real Estate, creating a $10B brokerage giant uniting Century 21, Corcoran, and Sotheby’s.

• Office pulse: Chicago now leads the nation in office traffic growth with a 12.5% year-over-year surge.

Editor’s Pick

Can Fed Rate Cuts Jumpstart Commercial Real Estate’s Comeback?

The Federal Reserve’s recent quarter-point rate cut may not make housing more affordable for everyday buyers, but it could provide faster relief to commercial real estate. Since the Fed began raising rates in 2022, commercial property values have plunged by more than 20%, sales slowed dramatically, and banks became hesitant to lend. Analysts say the new easing cycle could stabilize values, spur sales, and revive stalled projects like office-to-apartment conversions. Already, brokerages such as Marcus & Millichap and CBRE expect increased deal activity as borrowing costs begin to decline.

The commercial sector has shown early signs of recovery, with office sales prices in central business districts rising slightly year-over-year in July after sharp declines the year before. Apartment building values are also improving. Momentum is especially visible in major cities like New York and San Francisco, where buyers and sellers are aligning more closely on price. Many property owners facing distressed loans and expiring mortgages may find refinancing easier as short-term borrowing costs fall. With the Fed signaling two more cuts possible this year, optimism is building across the industry.

That optimism, however, comes with important caveats. Inflation continues to run above the Fed’s 2% target, hiring and wage growth are slowing, and new tariffs could drive up construction costs. A weaker economy could dampen rent growth, leasing demand, and consumer spending—factors that would weigh on property values despite cheaper financing. Some sectors once considered safe bets, like retail and industrial, are showing rising vacancies, while data centers remain the standout growth area.

Another limitation is the role of the 10-year Treasury yield, a crucial benchmark for longer-term debt used in many property sales and loans. Declines in short-term rates don’t always translate into lower long-term yields, as seen after recent Fed cuts, when the 10-year yield actually rose. Without relief in longer-term borrowing costs, the full impact of monetary easing on commercial property markets may remain muted, leaving many owners still struggling to refinance or transact.

Beyond these immediate challenges, the Fed’s easing cycle could subtly reshape the balance of power in commercial real estate. Over the past two years, lenders held most of the leverage as borrowers scrambled to refinance at higher rates. Cheaper credit now gives property owners more negotiating room, potentially speeding up workouts of distressed loans and unlocking capital for stalled projects. At the same time, investors are likely to double down on resilient sectors such as apartments and data centers, while leaving older office towers behind, deepening the bifurcation in the market.

Finally, the Fed’s shift sends a powerful psychological signal. Markets respond not only to the cost of money but to the perception of stability and direction. After nearly two years of uncertainty and paralysis, the belief that the tightening cycle is over could itself revive confidence. Sellers may feel emboldened to list, buyers more willing to transact, and capital markets more comfortable underwriting risk. More than any single rate cut, that sense of renewed momentum may prove to be the spark needed to thaw a frozen market.

Overheard

Compass’ Biggest Move Yet Could Change Brokerage Competition

Compass is buying Anywhere Real Estate in an all-stock deal valued at around $1.5-$1.6 billion, merging two of the biggest names in the U.S. residential brokerage world. Together they’ll form a company with an enterprise value (including debt) of nearly $10 billion, and a footprint of around 340,000 agents across owned brokerages and franchises. Anywhere brings along massive brands like Century 21, Coldwell Banker, Corcoran, Sotheby’s, etc.

This kind of consolidation makes sense in a tough housing environment—high mortgage rates, slow sales, and margin pressure. By combining, Compass can spread fixed costs over more agents, integrate title/escrow/relocation services from Anywhere, and leverage its tech-platform across a larger network. The deal also gives Compass more scale in markets where brand recognition and agent networks still matter a lot. But it also means the combined entity will be under more scrutiny, regulatory and from investors, and achieving the promised operational synergies won’t be easy.

The brokerage business is becoming more concentrated, which could shift how homes are listed, sold, and marketed. Compass has already been in a battle with Zillow over exclusive listings, this could give them a bit more leverage. Smaller boutique brokerages may also get squeezed unless they offer differentiated value over the larger players. Compass is using acquisition to outgrow its competitors in a difficult real estate environment. If the market changes, this move could play off nicely. But if it doesn't, the company might look back on the large sum of money they paid for Anywhere with a bit of buyer's remorse.

Chicago Leads Nation in Office Traffic Growth

Chicago’s central business district is seeing a gradual uptick in office activity, even if it remains far below pre-pandemic levels. According to Placer.ai, office visits in the city rose 12.5% year-over-year in August, the strongest increase among major metropolitan areas. That growth far outpaced the national average of 2.9%. Still, Chicago’s rebound is incomplete. Visits last month were down more than 45% compared with August 2019, the largest gap of any major market. Analysts called the gains encouraging but cautioned that it’s too early to declare a sustained turnaround.

Local projects underscore the effort to restore vibrancy downtown. The Chicago Board of Trade Building Museum opened this summer with city support, aiming to anchor the revitalization of the LaSalle Street corridor. Its host building, a longtime symbol of Chicago’s financial district, has leased roughly 600,000 square feet since early 2023, signaling landlord confidence. At the same time, job postings in Chicago surged by 23,000 year-over-year in July, led by onsite professional services roles, according to Avison Young. Leasing activity also rose modestly, up 3.4% in the first half of 2025 compared with 2024, driven by the West Loop, East Loop, and Fulton Market, though activity remains about 30% below pre-Covid levels.

Nationally, office markets are also showing tentative signs of life. In San Francisco, preliminary third-quarter data from JLL revealed more companies moving into space than vacating it, pushing net absorption into positive territory by 450,000 square feet and trimming the vacancy rate to 35.4%. Demand for office space is rising too, with tenant requirements climbing to nearly 9 million square feet, approaching prepandemic levels. Companies like Okta and LendingClub reclaimed or prepared to occupy space they had once considered shedding, and analysts attribute part of the momentum to the city’s AI boom. Together, the numbers from Chicago and San Francisco suggest that while the recovery is uneven, pockets of renewed leasing demand and business expansion are beginning to shape a cautious rebound in the nation’s office sector.

Office-to-Residential Playbook

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