Brighter Days: A Look Inside Commercial Real Estate Performance in 2025

The commercial real estate industry is emerging from the darkness. After a challenging two years marked by high inflation, increasing interest rates, and stalled investment activity, experts are predicting another commercial real estate boom is on the horizon. Next year, economists expect interest rates to fall by 125 basis points, laying the groundwork for improved commercial real estate fundamentals and investment activity. Several research outlets shared an optimistic outlook for 2025—including Deloitte, Moody’s Wells Fargo, and PwC—even despite some challenges, namely the fact that nearly $2 trillion in commercial loans will mature through 2026. Each commercial property type will see a different boost from the improving economic environment, from a more promising lending environment to improved performance. 

Here is the 2025 outlook for the four major commercial property sectors.    

Multifamily

The multifamily sector has been the consistent bright spot amid the recent market turbulence, leading investment and new construction activity. The sector has delivered a record number of new units in 2024, topping last year’s deliveries by 50% with more than 500,000 new units coming to market. The new construction—while much needed—will lead to increased vacancy and falling rents while the market absorbs the new supply. As a result, many market stakeholders expect leasing activity to decelerate this year, according to a survey from Deloitte. 

This stumble, thankfully, is only temporary. Moody’s expects the supply challenges to correct over the next 12 to 18 months with rent growth accelerating to 3% in 2025 and 2026. All in, the multifamily sector should continue to lead the commercial real estate market in rent growth. Regionally, Moody’s anticipates the Southwest will have the highest rent growth at 3.3%, and the West will have the shallowest rent growth, with 2.2% expected in the region. Strong demand will help to drive this rebound in rent growth. CoStar research expects the multifamily vacancy rate will peak at the beginning of the year at 8.1%. For these reasons along with a national housing shortage, multifamily continues to be a high-growth market. In Deloitte’s survey, respondents named multifamily as one of the top three markets for opportunity in the next 12 to 18 months. 

Office

The office sector’s mantra has been “survive to 2025,” with the expectation that rates will fall next year and give office owners more opportunity to respond to waning demand. Unfortunately, office owners will likely have to survive beyond 2025. In Deloitte’s Commercial Real Estate Outlook Survey, respondents were the least optimistic about the performance in the office market next year compared to any other commercial real estate asset class, citing poor expectations for improving transaction activity, elevated vacancy rate, and the higher borrowing costs relative to the pre-pandemic period. 

Now, experts are suggesting that the market won’t reach the trough until late 2025, largely thanks to new inventory delivering through 2026. As a result, the vacancy rate is expected to rise to 20% next year, according to research from CBRE, while Cushman & Wakefield expects vacancy to climb to nearly 22% in late 2025. In addition, office demand is continuing to stabilize as companies solidify and enforce hybrid and remote work policies. Thankfully, experts agree that the office has positive long-term prospects. While it is less catchy, it looks like the new mantra should be “survive to 2026.”

Retail

Retail real estate has been a story of evolution for more than a decade, and that won’t change in 2024. The market is continuing to adapt to new consumer modes of shopping, which include utilizing social media and multiple devices before making a purchase. The market has done a phenomenal job of adapting and will continue to in 2025. Stakeholders are optimistic about retail performance, with 72% expecting better lending conditions and 71% expecting improving capital markets fundamentals next year. While some markets can expect rent growth next year, like Dallas, in major metros, research from JLL expects rents to fall. Atlanta, Boston, Washington DC, and Chicago are in the early phase of rent deceleration, while Los Angeles, New York and San Francisco are in the late stage of rent declines, nearing the trough. 

Overall, retail has been a stable performer, according to CBRE’s Julie Whelan, global head of occupier thought leadership, and in 2025 demand is expected to improve. CBRE predicts that foot traffic will surpass pre-pandemic activity by 2025, helping to support retail stability in brick-and-mortar stores. Foot-traffic has become an important indicator of retail real estate activity to separate retail spending from online shopping. Retail spending in general is up 2.3% for 2024, and consumer spending is expected to grow 6% next year, supporting an overall positive growth story for the retail sector. 

Industrial 

At the beginning of the year, market experts predicted that industrial would reenter its growth phase in 2025. Instead, the industrial sector is transitioning into a period of stability and smart real estate management after more than a decade of robust growth. Property owners are looking to increase efficiency to save on real estate costs. As a result, industrial tenant demand is down 2%, according to research from JLL. In addition, only about 30% of current space requirements are resulting in a new lease. This is a time for cautious optimism for investors and particularly developers in the space. However, there are some areas of opportunity. While e-commerce has helped industrial real estate become a major player in the commercial real estate market, manufacturing is driving current growth. Manufacturing accounted for 15.6% of all space requirements this year, a 20% increase from 2023. Despite some disruption, however, industrial remains one of the best performing commercial real estate asset classes, along with multifamily. 

However, there are opportunities for new development in 2025. Industrial occupiers are also moving to smart and high-tech spaces that can create more internal efficiencies. Smart warehouses and manufacturing facilities that can support automation and robotics in particular will outperform traditional facilities. It is part of the broader digitization of the industry. Real estate owners and developers are embracing technology as a way to drive business growth, shore up balance sheets, and improve returns. Developers are doing the same with modern real estate development software like Northspyre, which uses machine learning and predictive analytics to track budgets and spending, manage invoices, generate financial forecasts, and automate administrative tasks. Altogether, these features have helped developers reduce overages by 66% and reduce overall spending by 6%. 

Next year, commercial real estate experts are optimistic about growth across sectors. While there are still challenges ahead, the industry is on its way out of the woods.  

Download our “Guide to Pro-Real Estate Development Legislation” to learn about the opportunities federal and state policies and programs are presenting for developers.