Waiting for Clarity: How USA Real Estate Funds Are Navigating Low Deal Volume in 2025

When we last checked on the USA real estate market, the industry was coming off a slow fundraising year. But with interest rate cuts and a favorable regulatory outlook, investor optimism was improving. We saw signs fundraising could be poised for an upswing, while rate cuts could increase deal activity and demand in the residential housing sector.

In recent months, much of this optimism has been undercut by news about tariffs and other economic and political issues. In an already uncertain climate, can Q1 data provide hints as to GP and LP sentiment regarding the market’s near and long-term future?

Fundraising was up in Q1, while deal volume was down

According to Preqin’s Q1 data report, “total global real estate fundraising reached $30bn during the quarter,” with the majority of that capital targeting North America. $21 billion was from funds “with a final size of more than $1bn,” signaling continued domination by larger funds.

While fundraising was strong, total deal value “fell by 37% versus the previous quarter.” Preqin attributes this to managers “moving into wait-and-see mode until the macroeconomic outlook clears.”

As we have yet to see the full effect of tariffs, tax policy, potential rate cuts, and other factors, it is understandable if many managers are on pause. If LPs follow suit, it could lead to slowed fundraising for the rest of 2025.

Core strategies looked strong to start out the year

Fundraising for core strategies reached nearly $6bn, according to Preqin, “exceeding the total raised in the second half of 2024.” As the report explains, “Interest rate hikes over the past two years reduced property values and core strategies faced strong headwinds which made delivering positive total returns challenging,” making 2024 a particularly challenging year.

Renewed investor confidence due to expected rate reductions has led to an influx of new vehicles. The number of fund launches in Q1 was “close to 400,” 83% of 2024’s total, outpacing opportunistic or value-added strategies in terms of percentage. With additional rate cuts expected this year, core strategies may continue to reap the rewards.

The outlook for retail, multifamily, office, and industrial

Surveying voices from around the industry, sector-specific predictions are varied. According to Preqin, retail deal value declined 15% quarter-on-quarter, a more modest decrease compared to other property types. At the same time, the report predicts “increased uncertainty here, given the potential impact of US tariffs on imports and how this could affect prices and demand.” Aberdeen Investments projects “a significant variation in rental performance in the year ahead,” with growth for retail “likely to moderate” due to a shrinking pool of tenants.

Preqin suggests economic uncertainty will make it “more challenging to underwrite new real estate investments, especially in the commercial sector. As a result, deal-makers are likely to prioritize transactions related to other property types, such as residential, in the coming quarters until there is greater clarity about the future economy.” Aberdeen similarly is “most positive about the multifamily sector, as excess supply should be absorbed by mid-2025.”

According to Avison Young, “multifamily investment sales activity rose 9.7% in Q1 2025” compared to Q1 2024, and “36.1% of total investment activity in the U.S. was related to multifamily sales in Q1 2025, proving multifamily remains the favored product.” They add that “66.4% of multifamily assets under construction are projected to deliver in 2025.” This could lead to greater supply in the latter half of this year, but with mortgage prices far exceeding rents, demand for multifamily rentals should remain high.

For office properties, there is little evidence to suggest return-to-office mandates will increase demand nationwide, meaning returns are likely to depend on regional market and asset quality. As JTC’s Harold Patch noted, “in order to incentivize more people to come back, a number of companies are investing heavily into office amenities.” Better-amenitized spaces are likely to see improved performance as companies look to entice workers.

Data from CBRE puts the overall vacancy rate for industrials at “6.3%, the highest since Q2 2014.” This is backed up by Savills, which noted that “about one-third of markets have seen asking rents fall 5% or more.” Tariffs could put the sector in an even more precarious position, as “logistics firms tied to China drove 20% of 2024 leasing activity.”

One area where demand remains high is data centers. According to Avison Young, “record-low vacancy rates persist amid continued demand from AI and cloud users, even as supply struggles to keep pace.” With extended timelines required for new builds because of complex zoning and power requirements, land currently banked for data center use will go at a premium. CBRE predicts that “despite record construction activity, the data center market will struggle to keep pace with demand.”

What the USA economy and government policy signal for the rest of 2025

Changes to US tariff policy, delayed or reduced interest rate cuts, and a potential showdown over the federal budget and its tax cuts could all prolong the ‘wait-and-see’ period that has limited deal activity in 2025. Funds may be left with large amounts of dry powder and will need to weather the stagnant period between capital raise and deployment. This period, already lengthy for real estate, could become a multi-year issue if markets don’t stabilize. Those who can wait for the right time to deploy could find a great deal of opportunity on the other side.

A period of inactivity could put a crunch on operating expenses, especially for managers that had staffed up in anticipation of heavy periods of deployment. Newer funds would be wise to avoid building out staffs too early, given the possibility of a slow, multi-year deployment period.

At JTC, we work with funds much earlier than many fund administrators to help them find operational efficiencies from the very beginning, starting with the fundraising stage and continuing through onboarding and capital deployment. By outsourcing key functions, it is possible to reduce staff and run a leaner operation, avoiding unnecessary costs so real estate fund managers can make the best decisions possible for their investors.

To learn more about how JTC makes real estate funds more efficient, click here.