Intelligent Investment

U.S. Real Estate Market Outlook 2025

Increased Leasing & Investment Activity Expected

December 11, 2024 55 Minute Read

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U.S. Real Estate Market Outlook 2025 Event Recording

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  • Despite many uncertainties, the U.S. economy is poised for growth in 2025, driven by consumer spending, easing financial conditions and productivity gains. While retail and data centers have been supported by longer-term trends, all other real estate sectors will see the start of a new cycle.
  • Economic growth and firming real estate fundamentals will drive a moderate recovery in real estate investment activity in 2025, even though the 10-year Treasury yield will remain above 4%. Capitalization rates will compress slightly. Investors have the opportunity to secure long-term returns that have not been available for many years.
  • 2025 will see the office up-cycle that began in 2024 gain traction, with shortages of prime space emerging toward year-end. Expect a steady office revival in America’s downtowns.
  • Retail enters 2025 with the lowest vacancy rate of any commercial real estate sector. Although retailers will further consolidate, we expect growing demand in suburban locations and Sun Belt cities. Institutional capital will return to this sector.
  • Industrial real estate will continue to benefit from e-commerce growth in 2025 but leasing activity will return to pre-pandemic levels. Vacancy will remain elevated in older properties as occupiers continue a flight to quality. The market remains tenant favorable but will tighten toward year-end.
  • After a strong and sustained surge in multifamily completions over the past two years, vacancy will edge down in 2025 due to robust tenant demand. Economic growth will support household formation but the still-high cost of home ownership will drive demand for apartments.
  • Artificial intelligence, cloud computing and the digital economy will drive extraordinary growth in the data center market. Demand for power will further strain the U.S. grid but will not hold back development, with nuclear power starting to play a more central role.

State of the Real Estate Cycle

Commercial real estate fundamentals are in relatively good shape as we enter 2025, with even the distressed office sector benefiting from improved leasing activity. Our industry has suffered profound shocks over the past four years from the pandemic, high inflation, rising interest rates and a surge in construction completions. That real estate has weathered these formidable challenges is testimony to the asset class’s resilience and its role as the bedrock of business operations.

It is tempting to say that we are in for a period of stability, but we know that will not be the case. Economic policies are changing under a new presidential administration, ways of working remain in flux, population migration is favoring the Sun Belt and the digital economy is booming.

While we expect that economic growth in 2025 will ignite a new real estate cycle, we know that potential risks loom. We look forward to helping our clients identify opportunities and navigate change to meet and exceed their goals in 2025.

Richard Barkham
Global Chief Economist & Global Head of Research

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Chapter 1 Economy