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

Photo by Arlind D

The Federal Reserve Bank of Kansas City has reported a modest decline in regional commercial real estate (CRE) activity over the past two quarters, signaling a slight cooling in the market after two years of steady growth.

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

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

Photo by Leeloo The First

Key Market Insights

Property Sales & Pricing: A slowdown in transaction volume and modest price corrections contributed significantly to the decline.
Development Activity: New project starts have tapered off amid tighter lending conditions and elevated construction costs.
Investor Confidence: Alignment in market participants’ views on CRE conditions remained steady, suggesting cautious optimism despite macroeconomic headwinds.

The KC Fed CRE Index is a composite indicator tracking commercial property sales, prices, development activity, and other financial metrics. A value of zero represents the historical average, while positive or negative readings reflect deviations above or below the long-term trend.

What It Means for Investors

For Kansas City real estate investors and developers, this slight slowdown may present opportunities to acquire undervalued commercial properties or reposition existing assets. While transaction activity has cooled, market fundamentals remain relatively strong, supported by continued population growth and diversified regional industries.

Experts expect stabilization through late 2025 as interest rates and construction costs moderate, setting the stage for a potential rebound in 2026.

All rights to the original material belong to the Kansas city fed