CRE Finds Its Footing Amid Policy Shifts and Market Reset

As we enter the final stretch of Q3, the commercial real estate market is showing signs of stabilization, even as broader economic forces continue to send mixed signals. At The Ballou Team, we’ve been closely tracking the shifts locally as well as nationally that are shaping investor confidence, capital flows, and asset performance. While Q2 was marked by volatility across financial markets and policy disruptions, the tone this quarter has been more focused, disciplined, and selectively optimistic. 

The ripple effects of the “One Big Beautiful Bill”, enacted earlier this year, continue to be felt across the CRE sector. While developers welcomed certain tax benefits included in the bill, the removal of several clean energy incentives created friction in underwriting and long-term planning. In Q3, we’re seeing more investors bake these changes into their assumptions. Higher projected capital costs and reduced credits are making certain projects, especially value-add or redevelopment plays, more difficult to pencil. But for well-positioned assets, particularly those with operational upside, there’s still a strong appetite. 

The gap between buyer and seller expectations that characterized the first half of 2025 is finally beginning to close. In many submarkets, pricing is adjusting to reflect the new cost of capital. As interest rate stability improves, underwriting confidence is returning. Transaction activity has picked up modestly since July, particularly in: 

• Light industrial and flex properties
• Small-format retail with strong tenant covenants
• Medical office and specialized healthcare assets
• Owner-user buildings where financing remains favorable

After sharp swings in Q2, equity and credit markets have settled down. Credit spreads that widened earlier in the year have narrowed, and many lenders are slowly re-engaging with tighter standards. 

Private capital remains the most active player in CRE financing today. Institutional groups are still cautious, but family offices, 1031 exchange buyers, and regional investors are selectively stepping in. Deals are getting done, but they require clearer narratives, real cash flow, and strong tenant fundamentals. The Fed slashed interest rates by a quarter of a percentage point in its first rate cut since last year.

While fears of a near-term recession have eased, the market isn’t pricing in aggressive growth either. Instead, this quarter is defined by a reset in expectations more conservative projections, more scrutiny in underwriting, and a renewed focus on operational fundamentals. 

WHAT IT MEANS FOR CRE STRATEGY IN Q4 2025 

This quarter marks a turning point. We’re not back to a boom market, but we’re far from the uncertainty that clouded the start of the year. Investors and users who are grounded in data and who have a clear operating plan are beginning to unlock real value in the current environment. 

At The Ballou Team, we’re actively working with clients across Connecticut to: