by: Yurick Lee

After two years of turbulence, the U.S. office market may be nearing a turning point. According to CBRE’s H1 2025 Cap Rate Survey, stronger income prospects, easing capital pressures, and improved investor sentiment are emerging across major metros. Cap rates, which peaked in 2024, have begun to ease, signaling that values may be stabilizing and optimism is returning, even for lower-tier assets.

While elevated financing costs continue to weigh on deal flow, these early signs suggest that pricing stability is setting in. Here at Lever Capital Partners, we’ve also seen a meaningful increase in interest across our office mandates, a sharp change from just a year ago. For investors, this period could mark the early stages of a reset, one where patient capital begins to reprice risk and position for recovery.

Cap Rate Trends Suggest Pricing Stability and Renewed Investor Confidence

Office cap rates are finally showing signs of leveling off. CBRE’s H1 2025 Cap Rate Survey notes that “cap rates have declined slightly and yields appear to be at (or beyond) their cyclical peak,” suggesting the market may have reached a turning point.

Investor sentiment is improving as values stabilize and income prospects strengthen. CBRE’s market brief indicates most participants believe cap rates have peaked, signaling growing confidence that the correction phase is largely behind us.

For lower-tier or value-add assets, once hit hardest by hybrid work and tighter lending, this shift could reopen opportunities as tenants return and pricing normalizes in select markets.

Elevated Financing Costs Continue to Shape Short-Term Strategies

Despite a more positive tone, financing costs remain a defining factor in the market’s next phase. Even as inflation cools, borrowing rates have not dropped meaningfully. According to CBRE’s market outlook, office cap rates rose “by at least 200 basis points” between early 2022 and late 2023 as higher interest rates pushed up borrowing costs and reduced proceeds from traditional lenders.

This environment has forced investors to rethink underwriting assumptions and deal structures. Rather than waiting for dramatic rate cuts, many are now building models around sustained higher-rate conditions, seeking predictability over perfection. As a result, investment strategies are evolving: shorter hold periods, lower leverage, and an increased emphasis on stable income are becoming the norm.

Meanwhile, the growth of private credit underscores how tighter liquidity and elevated rates have redefined the capital landscape. With banks maintaining conservative positions, private lenders and alternative credit platforms are stepping into the void, offering sponsors more creative, but often costlier, financing options.

Sponsors Are Turning to Alternative Capital to Bridge Until Markets Normalize

With traditional lending channels constrained, sponsors are increasingly turning to bridge loans, mezzanine debt, and preferred equity to keep projects funded and flexible. These layers of capital fill critical gaps between senior debt and sponsor equity, allowing transactions to proceed even when conventional financing is limited.

Citrin Cooperman’s 2025 Real Estate Financing Outlook highlights that mezzanine and preferred equity have become vital tools for bridging short-term funding needs. Similarly, Gibson Dunn’s 2025 Commercial Real Estate Insights notes that non-bank lenders and alternative capital providers are stepping up to supply liquidity, particularly in transitional and value-add office assets.

These flexible structures allow sponsors to refinance later into long-term, lower-cost debt once market conditions stabilize. In effect, they keep projects moving forward, preserving asset value and investor relationships during the recovery phase.

How Lever Capital Partners Can Help

As traditional lenders remain cautious, Lever Capital Partners (LCP) helps sponsors access the flexible capital they need to keep deals alive. By arranging structured financing solutions, including mezzanine and preferred equity layers, LCP helps bridge the gap between limited senior proceeds and total project cost.

This strategy enables sponsors to maintain project momentum today and refinance into lower-cost, long-term loans once the market fully normalizes. For assets in weaker office markets, such customized capital stacks are often the difference between stalled and successful outcomes.

With cap rates beginning to cool and investor sentiment improving, the bottom of the office market may already be in sight. Sponsors who act decisively, leveraging creative capital to stabilize assets now, will be best positioned to benefit when the recovery accelerates.he next cycle of innovation, partnership, and long-term value creation in commercial real estate.