M
arket Momentum Shifts in 2025: A Mixed Bag for Commercial Real Estate

    The Federal Reserve's decision to maintain interest rates at 4.5% has sparked a mix of optimism and uncertainty among market analysts, with the new administration's policies set to shape the market landscape in 2025. Despite this, commercial real estate is poised for improvement, driven by sector-specific trends.

    Office demand showed signs of recovery in early 2025, but net absorption remained negative due to high vacancy rates. However, office move-outs dropped significantly, and rent growth posted a modest gain. Boston and Washington, DC recorded the largest losses, while San Francisco's outflows slowed, and New York and Sacramento posted positive absorption.

    The multifamily sector stabilized in early 2025, driven by strong rental demand and a significant increase in net absorption. While new supply still outpaced demand, the gap narrowed, maintaining steady vacancy rates. Rent growth remained modest, reflecting market balance. High-demand metros absorbed over 20,000 units each, while rents fell in oversupplied Sun Belt cities.

    The retail sector continues to post the lowest vacancy rate among commercial property types, despite closures and bankruptcies. Net absorption fell significantly year-over-year, but rents still rose by 1.9%, and the vacancy rate increased only slightly. General retail led the way in positive absorption and had the lowest vacancy rate at 2.6%.

    The industrial sector slowed through early 2025 as new supply outpaced demand, leading to a decline in net absorption and an increase in vacancies. Rent growth softened further, but remains higher than in other sectors. Logistics led absorption, while Flex space saw losses.

    Hotel occupancy sits at 63%, still below pre-pandemic levels due to remote work's continued influence. However, average daily rates and revenue per available room have surpassed pre-pandemic benchmarks, signaling a rebound in profitability.

    Key takeaways:

    * Office demand shows signs of recovery, but net absorption remains negative.

    * The multifamily sector stabilized in early 2025, driven by strong rental demand.

    * The retail sector continues to post the lowest vacancy rate among commercial property types.

    * The industrial sector slowed due to new supply outpacing demand.

    * Hotel occupancy remains below pre-pandemic levels, but profitability is on the rebound.