Commercial real estate activity in the region has seen a slight decline over the past two quarters.

by Reco Real Estate Advisors

Kansas City Commercial Real Estate Sees Moderate Slowdown in 2025

Image source: the Kansas city fed

The Federal Reserve Bank of Kansas City reports a modest decline in regional commercial real estate (CRE) activity over the past two quarters, signaling a mild market cooling following two years of consistent expansion.

According to the latest KC Fed Commercial Real Estate Index, the measure fell from 0.13 in Q2 to -0.23 in Q3 2025, indicating activity has dipped slightly below the region’s long-term historical average.

Market Conditions Remain Stable Despite Softening

“Most aspects of commercial real estate activity softened in recent months. Limited property sales, declining property prices, and waning development activity weighed most heavily on regional CRE activity,” said Nicholas Sly, vice president at the Federal Reserve Bank of Kansas City.

Despite the recent pullback, Sly noted that overall CRE performance remains close to historical norms across the KC Fed region.

Key Market Insights

Property Sales & Pricing

A decline in transaction volume and moderate price adjustments contributed significantly to the index’s downward movement.

Development Activity

New development starts have slowed, driven by tighter lending standards and persistently high construction costs.

Investor Confidence

Market participants’ expectations for future CRE conditions remained aligned, signaling cautious optimism despite broader economic headwinds.

The KC Fed CRE Index is a composite measure tracking sales, pricing trends, development activity, and various financial indicators. A score of zero reflects the long-term regional average, while positive or negative values represent above- or below-average conditions.

What It Means for Investors

For Kansas City–area investors and developers, the measured slowdown may create opportunities to acquire undervalued assets or reposition existing properties. While transaction volume has softened, underlying fundamentals remain steady, supported by ongoing population growth and a diversified regional economy.

Analysts anticipate stabilization through late 2025 as interest rates and construction expenses ease, laying the groundwork for a potential CRE rebound in 2026.

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