Commercial real estate loan defaults are rising sharply in 2025, as banks navigate a shifting interest rate environment and a tightening economy. According to the April 2025 Commercial Capital Markets Report authored by Joe Biasi, Head of Commercial Capital Markets Research, and David Bitner, Global Head of Research at Newmark, non-owner-occupied CRE loans now hold the highest non-performing loan (NPL) ratios among all loan types.

This increase highlights how post-rate-hike pressures are straining banks’ portfolios, especially in the commercial and multifamily sectors.

Banks Face Challenges from Elevated NPL Ratios in Commercial Real Estate

The report shows that bank CRE and multifamily NPL ratios are well above their 10-year averages, despite historically average performance. While banks have so far avoided heavy losses by working with borrowers, the looming threat of an economic downturn could restrict their flexibility.

As the economy cools, consumer lending and commercial & industrial (C&I) loans may also falter, giving financial institutions even less room to restructure deals without taking on risk.

Interest Rate Cuts Are on the Horizon, but Uncertainty Remains

Recent data indicates a 98.8% probability of at least two interest rate cuts by the end of 2025, with many in the market anticipating as many as four to five cuts. This significant shift in expectations is being driven by slower GDP growth and uncertainties in trade policy.

If the Federal Reserve follows through with deeper cuts than previously forecasted, this could provide some relief to borrowers in the CRE sector. However, the lag between rate changes and actual lending conditions means that stress in bank portfolios may persist for several more quarters.

Cap Rates and Market Signals Reflect Broader Investor Concerns

Cap rates for sectors like Single Family Rentals, Life Sciences, and Telecom Towers are also being closely monitored. The report notes a divergence between historical averages and current implied cap rates, signaling heightened caution among investors.

These trends suggest that even high-growth or resilient asset classes are not immune to the broader macroeconomic concerns currently pressuring the CRE market.

Conclusion

The April 2025 update from Newmark Research provides crucial insights into the growing pressure within the commercial real estate lending space. Elevated NPL ratios, cautious bank behavior, and anticipated rate cuts all point to a year of volatility and adjustment in the market.

📌 Now is the time for property owners and investors to review their portfolio strategies.
👉 Ready to make smarter moves in a shifting market? Contact Larry Emmons for expert CRE advisory.