While the commercial real estate sector will face uncertainties in the coming year, there are reasons for optimism. 2025 is expected to bring positive changes, including reduced inflation and positive economic growth. No matter what the future brings, real estate owners, developers, and investors must stay informed on legal developments. Partnering with an experienced commercial property solicitor can help navigate both challenges and opportunities effectively.
How Will Economic Growth and Inflation Impact Commercial Real Estate?
The overall economic environment has a significant impact on the commercial real estate market. At this point, it appears that the United States will avoid a recession. In other good news, the pace of inflation has decreased substantially in recent months. Consumer spending is also predicted to expand, albeit moderately, in the coming year.
The prospect of economic growth is fueling optimism in the commercial real estate industry. Deloitte’s 2025 Commercial Real Estate Outlook Survey, which polled more than 880 global chief executives and their direct reports at major real estate owner and investor organizations across 13 countries, found that 88% of respondents expect their company’s revenues to increase going forward. This is a significant improvement over 2024’s survey in which 60% of executives reported that they expected further revenue declines.
What Challenges May Persist into 2025?
While many in the real estate industry have renewed optimism, there are still several reasons to exercise caution. Interest rates remain elevated, particularly compared to the record low rates of the prior decade. Additional rate cuts are not guaranteed. This is especially important due to the influx of maturities for commercial mortgages. These mortgages were originally underwritten at lower interest rates. Many will require refinancing over the next year.
Uncertainty also surrounds the new Trump Administration, which is expected to seek broad policy charges. Some of the biggest changes are expected in terms of taxes, immigration, trade, and global economics. Ongoing geopolitical conflicts in Ukraine and the Middle East may also temper economic growth.
What Commercial Real Estate Sectors Are Poised for Growth?
Overall, moderate recovery in real estate investment activity is expected in 2025. Some sectors will see more robust growth than others. Below is a brief overview:
Digital Economy Property: Demand for digital economy properties, in particular data centers, has increased significantly in recent years. With the rapid adoption of artificial intelligence (AI) and cloud computing, this sector is poised to remain strong. Construction of new data centers, however, continues to be hamstrung by power supply struggles, with many projects delayed until infrastructure catches up.
Manufacturing:Manufacturing is another sector experiencing growth. As companies look to diversify their supply chains and manufacture goods closer to home in the wake of the pandemic, it is creating opportunities for real estate owners and investors.
Office Space: Return to office mandates are good news for the office leasing sector, which was hit hard by the pandemic. CBRE predicts that the slow rebound that began in 2024 will continue into the new year, with shortages of prime space emerging toward the end of 2025. Office space in vibrant, walkable mixed-use districts and revitalized downtowns will see the highest rents and occupancy levels.
Retail:Retail currently has the lowest vacancy rate of any sector, boosted by strong consumer spending and limited retail space availability. Although retailers will likely continue to consolidate, demand insuburban locations, including open-air neighborhood, community and strip centers, is expected to remain strong. The lack of new construction will also keep rental rates high.
Multifamily: The multifamily sector should see a rise in investment activity in the new year. Shrinking construction pipelines and accelerating rent growth are expected across all markets. The multifamily sector will also benefit from higher tenant demand, as the ongoing high cost of home ownership fuels increased demand for apartments.
Partner With Trusted Commercial Property Solicitors
While commercial real estate investment can generative lucrative returns, the industry is also prone to volatility. To reduce your risks and maximize your returns, you need skilled commercial property solicitors on your team. With broad experience that spans every sector of the industry, our Commercial Real Estate Group is well-positioned to successfully handle the wide range of issues that arise in complex real estate investment matters.
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