Commercial Real Estate Predictions & Trends for 2025

“Opportunities in the market in 2025 are the best from the perspective of buying interesting real estate at a discount that I’ve not seen since 2012,” predicts Chris Loeffler, CEO of Caliber, a Scottsdale, Arizona-based CRE REIT and investment organization. 

Loeffler is one of several commercial real estate experts we asked to look into their crystal balls and make some calls about 2025’s commercial real estate trends. After our taking a look back at 2024, it’s time to look ahead at what may be coming.

“(This is) driven by the fact that the same phenomenon happened to happen in 2008,” he said. “It is happening now where the values had a pretty precipitous decline across the country in commercial real estate since the last peak.”

Sally Ann Flood, Vice Chair U.S. Real Estate Section for Deloitte, a global professional services firm, told us to look for improvements but not smooth sailing in the year ahead.

“For increased transactions and increased focus on real estate and commercial real estate, there are still a lot of headwinds there,” she said. “And even with the current interest rate environment, I don’t feel that we’re going to see a quick swing, but we are seeing a change in momentum as a result in kind of, as I said, the interest rate environment.”

Interest Rate Trends

A couple of the subject matter experts who talked with us felt that 2025 could be unpredictable.

“It’s kind of a big wild picture going into it because there are a lot of variables going into 2025,” said  Lukas Krause, CEO of SVN Commercial Real Estate Advisors in Phoenix, Arizona. “(The year) is going to have a pretty unique output. We’ll stabilize a little bit with the lower interest rate, but nothing like as aggressive as coming out of 2008 where we went down to basically zero percent.”

Loeffler and his firm envision:

• Lower interest rates will happen in 2025, but
• Cap rates will still push properties into distress
• Distressed properties and delinquent loans in 2025 may be opportunities

“We’re looking for people who got caught in the real estate interest rate cycle and just need someone to take over the project,” he told us. “They want to either walk away at cost or some level below cost, or partner with us and finish the project and get paid some fees.”

Lower interest rates were an expectation among all in the conversation.

“If we think about the fundraising, where will the funds come from?” asks Flood. “With the potential continued decline in interest rates, CRE is potentially at the bottom of the curve.”

3 Impacting Factors

While there are a number of contributing factors that affect the course a market travels, there are a few more significant ones to watch.

Politics

CRE’s future cannot escape politics, according to Krause. “We’ve got a new administration coming in that everyone you talk to says is very favorable for business. I’ll say that legislation for tax changes will probably be favorable for business environment.”

Inflation

He also calls out “this crazy inflation piece” of the economy. “We still haven’t seen the other shoe drop from this unprecedented level of stimulus in the economy,” he added. “It’s kind of unprecedented. We don’t know what what’s going to happen. You never see that kind of dollars (added to) the economy like that.”

Building supplies costs

Reva Norozy, COO for Prism Construction, a general contractor, in Vancouver, British Columbia, Canada, offers a perspective from across the border. 

Norozy, who works with clients on both sides of the border, said that a significant inventory of building supplies is shipped into the U.S. from Canada. Tariffs, he said, will drive up costs.

“I can say the construction cost is expected to be higher,” he predicted. Definitely, if new tariffs are in place.”

Flood and Tim Coy, Deloitte’s Commercial Real Estate Research Leader, agree.

“We’ve had supply chain issues in the past,” Flood pointed out. “(It is) certainly something our industry is familiar with. That and increasing costs.” Coy added that Deloitte didn’t touch on tariffs too much in their 2025 CRE Outlook report. 

“I think at the time of developing it, we knew a little bit less than we do,” Coy said. “Now that we do know the state of the election, I would point to (our tax policy group and) their expectations in tariff policy, that might be a little more definitive. It will definitely affect (the) market.”

Potential Growth Sectors

All the experts participating said this is the year of industrial and particularly data centers. 

“We saw data centers at the top of the list again,” said Coy. “Industrial and manufacturing have been the main (top-growing) asset classes. The data centers? That’s not a surprise.”

On the other side of industrial growth is the increasing number of multifamily units across the country. Whether those are suitable investments varies with the markets. Affordability issues across the nation are driving people into multifamily homes, but Coy cautions against jumping in that direction.

“We could be facing some supply-demand mismatch,” he predicts. “I don’t think we’re seeing it more broadly, but there are probably some pockets across the US where the demand balance may not be what it was.”

Loeffler agrees with Coy.

“In multifamily, it’s not a lack of demand. We’re still, in some cases, underbuilt, and there’s still a lack of housing,” he said. “The multifamily capital stacks are all distressed from anyone who built projects in the last couple of years or invested in projects in the last couple of years because they paid a price that was too high or they built at a price that was too high with leverage that was too cheap.”

CRE developers are still hopping onto the multifamily bandwagon. Overbuilding in some markets will be a problem, and leveling rents and lower occupancy rates will challenge other markets. Krause is concerned about painting a sector with a broad brush.

“We have a heavy, heavy effort in multi-family,” he said.  However, he sees a lot of diversity in where investment is going in 2025.

“We have industrial, and there’s a lot of land activity going on,” Krause added. “It’s hard to single out (one asset class) because we cover every element of the industry. There are niches, but there are buyers who value a certain asset class and are very, I’ll say aggressive, but very committed, to continue to expand in what they know.”

Conclusion

Everyone agreed that 2025 is going to be difficult to predict. Loeffler said that coming out of 2024, we’re dealing with some conditions we’ve never seen before which makes it challenging to build a 2025 prediction based on precedent.

Some takeaways to consider are:

• Discounted property opportunities may be more prevalent than the last decade.
• Decreases in interest rates, but nothing tumbling like what followed 2008.
• The new administration may be favorable to fueling the market.
• Inflationary effects have not subsided yet.
• Tariffs could affect construction costs for developers.
• Sectors to watch for growth opportunities are industrial and multifamily – although they may be across select markets.