The U.S. commercial and multifamily real estate finance market concluded 2025 with a powerful surge in lending activity, decisively shaking off the sluggishness that characterized much of 2024. A fourth-quarter boom in mortgage originations, which jumped an impressive 30% from the same period in the previous year and 25% from the third quarter, signaled a robust recovery gaining significant traction. This renewed momentum was largely propelled by the easing of interest-rate volatility, which provided the clarity and confidence needed for depository institutions to re-enter the lending landscape with force. This late-year acceleration capped what was ultimately a notably stronger year for property finance, although the recovery’s strength was not evenly distributed, revealing deep divisions across different property types and capital sources. The overall trend points toward a healthier and more active financing environment, but one that remains highly segmented and contingent on broader economic stability.
The Resurgence of Depository Lenders
Depository institutions, a category that includes commercial banks and thrifts, emerged as the undisputed engines of the real estate lending recovery in the final months of 2025. In the fourth quarter, these lenders aggressively reclaimed market share by increasing their lending volume by a staggering 74% year-over-year. This growth dramatically outpaced other capital sources; for comparison, investor-driven lenders saw a 46% increase, while government-sponsored enterprises (GSEs) like Fannie Mae and Freddie Mac grew by a modest 4%, and life-insurance companies by just 1%. The quarter-over-quarter data further reinforces this bank-led expansion, with depositories boosting their originations by a remarkable 54% from the third to the fourth quarter. This assertive return to the market firmly established banks as the primary force behind the sector’s resurgence, providing much-needed liquidity and signaling a significant shift in institutional sentiment toward commercial real estate assets as the year drew to a close.
The primary catalyst for this renewed confidence among depository institutions was the stabilization of the interest rate environment. After a period of significant volatility that created uncertainty for both lenders and borrowers, the latter half of 2025 brought a more predictable landscape for borrowing costs. This newfound stability provided the essential pricing clarity and underwriting confidence necessary for financial institutions to re-engage with the market on a large scale. Lenders could more accurately assess risk and price loans, while borrowers could better forecast their debt service obligations. This dynamic was reflected across the full-year data for 2025, where banks led all capital sources with a 74% annual increase in lending. This was followed by a strong showing from investor-driven lenders, who grew their activity by 59%, and more moderate growth from GSEs (27%) and life insurers (23%), solidifying the narrative of a broad-based, bank-driven return of capital to the market.
A Tale of Two Markets
The lending recovery was far from uniform across all property types, revealing deep divisions in investor confidence and highlighting ongoing structural shifts within the real estate market. The office sector, despite persistent long-term questions about its future in a hybrid work world, experienced the most dramatic year-over-year rebound in the fourth quarter, with financing volumes nearly doubling in a 95% surge. This was followed by healthy annual gains in other key sectors, including industrial lending, which rose 23%, multifamily, which saw a 22% increase, and health-care properties, which posted a 20% gain. These figures paint a picture of a robust recovery in specific segments where investor demand remains strong. However, a closer look at the quarter-over-quarter data suggests some nuance; the office sector’s momentum appeared to stall late in the year with a slight 1% dip from the third quarter, indicating its massive annual gain was likely driven by transactions that closed earlier in 2025 rather than a sustained end-of-year acceleration.
In sharp contrast to the growth sectors, retail and hospitality assets faced significant headwinds, with loan originations for both property types falling precipitously. Lending for retail properties fell 12% year-over-year and plunged a staggering 32% from the prior quarter, underscoring persistent caution toward consumer-facing real estate. The hospitality sector fared even worse, with lending dropping a steep 34% year-over-year. These declines reflect ongoing investor apprehension about assets that are heavily dependent on discretionary consumer spending and travel patterns, which remain sensitive to broader economic conditions. The full-year preliminary figures for 2025 reinforce this narrative of a bifurcated market. While most sectors posted strong annual growth, the hotel sector was the sole major category to record a contraction for the full year, with originations declining by 7%. This stark divergence highlights a market that is not rising on a single tide but is instead being selectively lifted by specific currents of capital and confidence.
A Market Redefined by New Realities
The conclusion of 2025 marked a period of material improvement in capital availability and transaction volume for the U.S. commercial lending market. The most significant driver of this positive shift was a more stable interest rate environment, which provided the essential underwriting confidence and pricing clarity for both lenders and borrowers to move forward. This stability unlocked a wave of activity that had been held back by previous volatility. The market’s performance, however, revealed a clear segmentation, with distinct winners and laggards. Industrial, multifamily, and, surprisingly, the office sector demonstrated remarkable resilience and attracted significant financing. In contrast, the hospitality and retail sectors continued to struggle, reflecting investor skepticism about their near-term prospects. This uneven recovery illustrated that capital was not flowing indiscriminately but was instead being strategically deployed into assets perceived to have the strongest fundamentals in the current economic landscape. The durability of this momentum into 2026 was seen as contingent upon the broader economic trajectory and the future path of borrowing costs, which remained the pivotal factors shaping market sentiment.
