T
he commercial real estate market is poised for significant changes in 2025, driven by shifting economic conditions, regulatory policies, and technological advancements. As the industry navigates this complex landscape, several key trends are expected to emerge.
Supply shortages will worsen across various property types, including offices, industrial spaces, and data centers. In the US and Europe, new supply is declining due to high construction costs, labor constraints, and changing demand patterns. This shortage will lead to increased competition for top-quality space, driving up prices and rents. As a result, investors will need to be more selective in their asset choices and focus on active management to drive income growth.
The early-mover advantage in commercial real estate investments may peak in 2025 as more capital enters the market. Investors who deploy capital early will likely see higher returns, but this advantage will diminish as the cycle matures. The increasing demand for data centers, driven by AI requirements and growing data consumption, will continue to drive growth in this sector.
Growing corporate confidence in portfolio requirements will accelerate decision-making in 2025. After years of reducing space requirements, companies are now looking to expand their office presence, with some mandating increased attendance and implementing attendance tracking measures. This shift towards hybrid workspaces will lead to increased demand for high-quality office space, particularly in CBD locations and vibrant mixed-use neighborhoods.
Multiple converging factors will encourage action to mitigate the risk of obsolescence in 2025. The scale of potentially obsolete assets is significant, with an estimated $933 billion to $1.2 trillion required to remain viable over the next five years. Real estate owners must consider building age, design, location, and ESG considerations when making strategic decisions about their assets.
Tackling cost pressures and energy security will drive an acceleration in decarbonization efforts in 2025. As electricity demand rises due to AI technologies and EVs, organizations will prioritize comprehensive energy audits and feasibility studies to identify retrofit opportunities with the highest potential returns. This focus on decarbonization will transform the concept of ESG considerations from solely a strategic economic opportunity to a critical component of operational management.
The next stage of the recovery cycle is underway, characterized by strengthening demand, improved liquidity, and more decisive corporate action. However, significant risks persist, including financial and policy uncertainties, supply chain disruptions, obsolescence, and concerns over energy costs and security. Agility and resilience will continue to be critical for success in 2025, as market participants shift their balance from defense to offense to take advantage of market opportunities.
