Commercial real estate market in Spokane faces challenges with rates and expectations

Commercial real estate in the Spokane market continues to demonstrate resilience, even as it faces a challenging landscape influenced by various factors such as high interest rates, expensive properties, concerns about tariffs, and global trade tensions. Industry observers note that certain sectors within commercial real estate are faring well, despite these obstacles.

At present, a key issue affecting commercial property prices is the limited availability of inventory. Casey Brazil, the Vice President and COO of Kiemle Hagood, a Spokane-based commercial brokerage, points out that prices haven’t dropped significantly even with higher interest rates, as anticipated, due to the lack of new properties being constructed for potential buyers or occupants. The Federal Reserve has maintained interest rates between 4.25% and 4.5%, impacting commercial loan interest rates that currently range between 6.5% and 7% in the Spokane market.

Investors and analysts are closely monitoring capitalization rates (cap rates) in response to the prevailing economic conditions. Cap rates, which reflect the potential return on investment based on a property’s net income and sale price, need to increase for investors to achieve a positive leverage when borrowing money. Historically, Spokane has seen cap rates between 6% and 7%, but recent trends have led to a shift towards higher cap rates due to rising interest rates.

James Black III, a senior investment advisor at NAI Black in Spokane, highlights the importance of maintaining a spread of 1.5% to 2% between loan rates and cap rates for a healthy market. He notes that it is challenging for buyers to find deals with high cap rates, as sellers’ expectations still reflect previous market conditions when property values were higher.

A gap between buyers and sellers’ expectations further complicates the commercial real estate landscape. Sellers are often influenced by past market conditions when properties were more valuable, while buyers face the reality of higher borrowing costs. To bridge this gap, alternative financial solutions are becoming more prevalent to help facilitate transactions.

Despite these challenges, some positive trends are emerging in the Spokane commercial real estate market. Kiemle Hagood and NAI Black report increased sales activities in 2025 compared to the previous year. Notably, Kiemle Hagood saw a surge in sales transactions, particularly with the sale of the Riverpoint One building to Spokane Public Schools for $12 million. NAI Black also experienced success in various leasing, subleasing, and sales activities, indicating a positive trajectory in the market.

On a national scale, the commercial real estate sector is experiencing new inventory outpacing absorption rates for multifamily, retail, and industrial properties. In the Spokane market, downtown office properties face challenges such as high vacancy rates, public safety concerns, limited parking, and stagnant rent growth. However, demand for office buildings is stronger in peripheral areas like Liberty Lake, North Spokane, and the South Hill.

While the commercial real estate market in Spokane confronts numerous obstacles, the sector demonstrates signs of resilience and adaptability in navigating through the current economic conditions. Buyers, sellers, and investors are adjusting their strategies to meet the evolving demands of the market and seize emerging opportunities within the commercial real estate landscape.