Commercial Real Estate News
2025 Prediction: U.S. Commercial Investment Recovery Expected to Gain Traction
Even as interest rates remain elevated for an extended period
The U.S. economy is poised for above-average growth in 2025, fueled by robust consumer spending. However, persistent inflation could result in prolonged higher interest rates, according to CBRE's 2025 U.S. Real Estate Market Outlook.
CBRE predicts several positive trends for the year, including a modest rise in commercial real estate investment, stabilization of office market vacancies, and increasing occupancy and rents in the multifamily sector despite substantial new construction.
Higher U.S. tariffs on foreign goods are expected to impact the retail and industrial & logistics sectors, triggering inventory surges, onshoring of manufacturing, and elevated retail prices later in the year. In the data center market, supply will remain insufficient to meet high demand.
"The U.S. economy has achieved a rare soft landing in the face of higher interest rates, and the outlook for growth in 2025 is increasingly optimistic," said Richard Barkham, CBRE's Global Chief Economist and Global Head of Research. "Risks to this outlook include the large U.S. fiscal deficit, which adds to bond market volatility, and the fragility of the Chinese economy."
U.S. Economic Forecast
The U.S. economy is likely to expand by 2% to 2.5% in 2025, with inflation stabilizing at 2% to 2.4%, unemployment steady at 4% to 4.5%, and the 10-year Treasury yield exceeding 4%. Strong corporate earnings and stable banking conditions will offset challenges like import tariffs and high debt costs. Risks include slower Federal Reserve rate cuts if inflation resurges and global uncertainties, such as a potential recession in China and U.S. dollar appreciation.
Capital Markets
CBRE projects a 10% increase in investment activity, driven by improved economic confidence and higher property returns. While debt capital costs will remain elevated, capitalization rates are expected to decline slightly, enhancing property valuations.
Office Market
The office market is likely to stabilize in 2025, with a 5% increase in leasing activity and the national vacancy rate peaking at 19%. Prime office spaces may experience vacancy rates as low as 8.2% by 2027, making premium locations increasingly competitive.
Retail Sector
Retail rents are projected to rise as availability remains below 5%, due to limited new construction. Markets like Phoenix, Austin, Dallas, Nashville, and Charlotte are expected to attract strong retail activity, supported by population and job growth.
Industrial & Logistics
Trade policies will bolster demand for industrial facilities near the U.S.-Mexico border and along major north-south transportation corridors. Leasing activity is forecast at over 800 million sq. ft., with third-party logistics providers accounting for a significant share. Construction is expected to slow considerably after years of robust building.
Multifamily Market
The multifamily sector will benefit from easing construction pressure, with vacancy rates expected to decline to 4.9% and rents to rise by 2.6%. Sun Belt states will dominate new construction, while overall starts will fall 30% below pre-pandemic averages.
Data Centers
Driven by the AI boom, demand for data center space will surge, reducing vacancy to 2.8% and pushing prelease rates to 90%. Construction activity will reach record highs, and alternative energy sources like nuclear will gain attention.
