Rising Treasury Yields Stir Concern In Commercial Real Estate
Yields on 10-year U.S. Treasury bonds jumped sharply last Friday following a lukewarm jobs report, unsettling news for commercial real estate professionals already navigating a fragile economy.
This latest rise in yields is another twist in the $28.6 trillion U.S. Treasury market — a key driver of government spending and a benchmark for commercial real estate debt. While federal tariff policy has recently grabbed headlines, bond investors are more concerned with rising deficits and long-term fiscal health.
For commercial real estate, the rising yields signal growing costs of capital. Many property owners are finding it harder to delay tough decisions, as the once-prevalent “extend-and-pretend” and “survive until 2025” strategies face mounting pressure.
“The bond market is basically taking away hope,” said Pat Jackson, CEO of Sabal Investment Holdings. “We never believed interest rates alone would save anyone. It’s time for some real decisions.”
The 10-year Treasury yield has now climbed more than a full percentage point above its September 2024 low, reflecting investors’ concerns over fiscal policy and economic stability. Peachtree Group CEO Greg Friedman warned on a recent podcast that investors need to tread carefully and anticipate potential shocks, including geopolitical disruptions or unexpected events — so-called “black swan” risks.
Some buyers are underwriting deals based on outdated interest rate assumptions, which Friedman cautioned could lead to overpaying. Meanwhile, others are bracing for even higher rates, with some traders forecasting 10-year yields over 5% following recent credit downgrades and widening budget deficits.
Investors are also watching Washington closely. Congress faces a pivotal debate over the federal debt ceiling this summer, and some proposals — like eliminating the borrowing cap — could further erode confidence in U.S. debt, potentially pushing yields higher.
Despite the volatility, commercial real estate transaction activity showed resilience in Q1 2025. According to Colliers, total deal volume rose 17% year-over-year to $92.5 billion, with strong performances in multifamily, hospitality, and industrial sectors. Office, however, remained weak.
Brokers and executives are cautiously optimistic. “Activity is continuing and our pipelines remain very strong,” CBRE CFO Emma Giamartino said, adding that if yields stay below 5%, market momentum should persist.
Yet experts agree: higher-for-longer rates and the looming $1.5 trillion wall of maturing debt in 2025 will shape the market. With refinancing becoming more difficult, especially for distressed assets, many owners face limited exit strategies.
“The value increase they were banking on never materialized,” Jackson said. “That’s why firms like ours are stepping in.”
In this climate, caution, realism, and adaptability will be essential for navigating what lies ahead in commercial real estate.
Source: Bisnow
