- The US economy is projected to grow 2.4% in 2025, the highest among G7 nations, creating a positive backdrop for real estate markets.
- Commercial real estate fundamentals are strengthening, with low supply levels expected to drive rent and price growth.
- Residential and industrial real estate sectors, driven by housing shortages and data center demand, present robust investment opportunities.
- Challenges persist in the office sector due to refinancing pressures and lagging demand, but adaptive reuse projects like office-to-residential conversions show promise.
- REITs are well-positioned for growth due to access to diversified funding sources, even as private capital raising struggles.
With GDP growth projected at 2.4% in 2025, the American economy is a global standout. Optimism is buoyed by a stable political climate, the potential extension of tax incentives like the Opportunity Zone program, and increased federal spending.
Real estate yields are also attractive, particularly given the decade-high rates compared to other asset classes, as reported by IPERA.
Signs of Recovery
Construction starts have dropped by 70% since 2022, constraining new supply across sectors. This supply-demand dynamic is expected to drive rent increases and support price growth.
Experts like Todd Henderson of DWS highlight these fundamentals, emphasizing demand as a critical driver in 2025.
Office Challenges
The office market faces unique hurdles, including $2T in maturing debt by 2026 and high refinancing rates. Markets like San Francisco and Seattle report high vacancy rates and turnover. Conversion to residential use offers a potential lifeline, but these projects remain a small fraction of the market.
“2025 is the litmus test for office recovery,” notes Chad Lavender of Newmark, citing opportunities in recapitalization and urban core revitalization.
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Residential Strength
Demand for rental housing is expected to remain robust, driven by high mortgage rates and affordability challenges. With annual demand exceeding supply in major US markets, the rental market benefits from demographic tailwinds, particularly as millennials seek family-sized homes.
Michael Levy of Crow Holdings points to manufactured housing as a growing investment sector that offers affordability and value-add opportunities.
Emerging Opportunities
Industrial real estate and data centers continue to shine, with demand for light industrial properties and compute power showing no signs of slowing. Meanwhile, limited new supply and healthy fundamentals make retail another potential comeback story.
What Lies Ahead?
The US real estate market is entering a period of cautious optimism. As 2025 approaches, investors should keep an eye on adaptability and structural demand drivers to navigate this dynamic market.
While economic growth underpins its recovery, addressing the challenges in office real estate and aligning public-private valuations will be critical to sustained momentum. The affordable housing crisis, alongside evolving investment opportunities in alternative real estate assets could define the next wave of growth.gh-quality but still affordable properties outside Midtown.
