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ommercial real estate is expected to see a modest rebound in 2025, driven by resilient economic growth and demand for space. However, lingering inflation could push up long-term interest rates, complicating the recovery. Industrial warehouses are poised to stand out in 2025, with experts predicting a strengthening market as new supply dwindles and demand picks back up.
The commercial property sector has faced challenges in recent years due to rising interest rates, which have pushed down values and complicated refinancing deals. The office market has been particularly affected, with hundreds of millions of square feet of space facing accelerated obsolescence due to the shift towards hybrid and remote work.
Despite these challenges, experts are cautiously optimistic about the sector's rebound in 2025. The Federal Reserve's rate cuts have provided relief, and more cuts are expected next year. However, long-term interest rates remain a concern, with observers expecting them to hold steady or even rise in 2025.
The Mortgage Bankers Association estimates that two-thirds of commercial real estate debt is tied to long-term interest rates benchmarked against the 10-year Treasury yield. This could continue to complicate sales and refinancing deals, particularly for distressed assets that are now worth less than their debt.
CBRE forecasts a modest 7.5% increase in investment sales activity in 2025, with about $410 billion of transactions expected. However, Richard Barkham, CBRE's chief economist, warns that lingering higher long-term interest rates could dampen the rebound.
The incoming Trump administration has generated optimism among investors, who expect better tax issues, less regulation, and a boost to opportunity zones. The industry is also positive about the potential for real estate-specific policies from the new administration.
Industrial warehouse space remains a darling of the sector, despite a rocky 2024. Experts predict a resurgent market in 2025 as demand picks back up and new supply dwindles. Online sales are expected to continue growing, adding tailwinds to the segment.
