CBRE: 2025 US CRE Investment Considerations
The CBRE "2025 U.S. Real Estate Market Outlook" outlines pivotal insights and forecasts for real estate investments in the upcoming year, emphasizing sector-specific dynamics, macroeconomic drivers, and emerging opportunities. Below are the detailed highlights:
Economic Context and Overall Market Recovery
Economic Growth: Projected U.S. GDP growth of 2.0-2.5% in 2025, supported by robust consumer spending and easing inflation. The 10-year Treasury yield is expected to remain above 4%, influencing capital flows and investment activity.
Soft Landing: The economy has achieved a soft landing despite global risks, with key support from resilient consumer wealth, moderated inflation, and fiscal policies favoring growth.
Sector Highlights
Industrial & Logistics
Demand and Leasing: Industrial leasing activity is stabilizing above pre-pandemic levels, with a forecast of 805 million sq. ft. leased in 2025.
Flight to Quality: Tenants are prioritizing modern facilities equipped with automation and employee amenities. Older properties face elevated vacancies.
E-commerce Influence: The e-commerce share of retail sales is projected to reach 25% by the end of 2025, fueling demand for distribution centers in core markets like Dallas-Fort Worth, Atlanta, and Inland Empire.
Multifamily
Resilient Renter Demand: Multifamily remains the preferred asset class, with a projected vacancy rate of 4.9% by year-end and annual rent growth of 2.6%.
Development Trends: The construction pipeline is shrinking, with 74% fewer starts than at the 2021 peak, leading to better market balance.
Homeownership Challenges: High mortgage rates and home costs continue to favor renting, particularly in markets like Austin, Los Angeles, and Phoenix.
Office
Stabilization Phase: The U.S. office market is transitioning to a stabilization phase, with overall vacancy expected to peak at 19% in 2025.
Prime Space Demand: A clear divide is forming between prime office properties in vibrant, mixed-use districts and underperforming older assets.
Portfolio Strategies: Occupiers are increasingly planning expansions or stabilizing their footprints, with a 5% rise in leasing volume expected.
Retail
Limited Supply: Retail vacancy remains at record lows, supported by minimal new supply and strong tenant demand in suburban and Sun Belt markets.
Experiential Retail: Retailers are shifting toward immersive "retailtainment" models to engage consumers, focusing on existing high-quality spaces rather than new developments.
Data Centers
Demand Surge: Continued growth in AI, cloud computing, and 5G is driving a surge in demand for data centers. Preleasing rates for under-construction facilities are expected to exceed 90% in 2025.
Power Limitations: Site selection will hinge on power availability, with markets like Northern Virginia and Dallas-Fort Worth seeing robust activity.
Investment Trends
Capital Markets Recovery: Investment volumes are forecast to grow by up to 10%, with industrial and multifamily assets leading. Retail will also attract interest due to its strong fundamentals.
Cap Rate Dynamics: Slight compression is expected across asset classes, with industrial and retail cap rates falling by 30 bps and 24 bps, respectively.
Structural Opportunities: Investors are focusing on markets with population and job growth, such as Phoenix, Nashville, and Dallas, to capitalize on changing demographics and economic trends.
Strategic Considerations for 2025
Focus on sectors with resilient demand drivers, such as multifamily and industrial assets.
Prioritize investments in markets benefiting from demographic shifts and infrastructure development.
Leverage opportunities in distressed or transitioning office and retail properties.
Monitor emerging challenges, including geopolitical risks, fiscal policy impacts, and persistent inflation.
Explore alternative investments like data centers, particularly in secondary markets with favorable power infrastructure.