U
S and Canadian real estate is poised for a new cycle in 2025, driven by declining interest rates and improving economic growth. However, this cycle will be distinct from previous ones, with higher interest rates leading to a more moderate pace of value recovery, according to LaSalle Investment Management's North America chapter of the Insights, Strategy and Analysis (ISA) Outlook 2025 report.
The landscape has shifted since last year's ISA Outlook 2024, which saw lower transaction volumes due to high interest rates and challenging macroeconomic conditions. This time around, while capital flows to real estate are expected to increase in 2025, conditions across sectors and markets will remain uneven. As a result, investing in the coming cycle will require selectivity at the sector, market, and sub-market level.
LaSalle's ISA Outlook 2025 identifies several key themes that will influence real estate decision-making in the US and Canada, including economic growth concerns fading but new risks on the horizon, best market entry points tending to be early in the cycle, and balancing a portfolio with real estate debt. The report also notes that some market segments and assets will remain stressed under any realistic outlook for economic growth and interest rates.
The ISA Outlook 2025 provides sector-by-sector analysis of different property types, including apartments, industrial, retail, and office. In the US, apartment fundamentals are expected to improve in 2026, while industrial performance is likely to be favorable due to secular tailwinds. Retail construction is expected to remain low, making existing supply more attractive, especially for high-quality centers in growing markets.
In Canada, apartment fundamentals remain strong due to migration-related demand drivers, and industrial performance is also expected to be favorable. However, office demand continues to be negatively impacted by remote working, but economic growth will eventually outweigh this factor.
LaSalle's research suggests that investors need to weigh the potential upside from allocating to equity versus the downside protection in a debt position. While interest rates remain high relative to historic levels, there are still strong reasons for investors to allocate to debt, including structural tailwinds and portfolio diversification benefits.
According to LaSalle's experts, navigating the current environment will require selectivity at the sector, market, and sub-market levels. The ISA Outlook 2025 research provides a comprehensive look at value across a wide range of sectors and markets, enabling investors to build a well-positioned real estate portfolio.
