The CRE outlook for 2025 appears far more optimistic than it did a year ago after several significant headwinds that plagued the industry during the first two-thirds of the year have subsided. This is according to Colliers’ 2025 CRE outlook, which noted interest rate cuts, less political turbulence than expected and increasing activity in multiple property types in recent months bode well for the industry.
Some supply and demand realignment remains and is expected before the second half of next year, Colliers said. Office visits remain below pre-pandemic levels, but return-to-office mandates are gradually boosting occupancy rates. Net absorption has turned positive but hasn’t firmly stabilized yet, and a surge in development has pushed vacancy rates up more than 250 basis points.
Retailers are closing more stores than they are opening, but occupancy rates have reached a decade high. And the multifamily sector is benefitting from a slowdown in new deliveries and the persistent high cost of home ownership.
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Colliers outlined four trends to watch for the CRE industry in 2025, the first of which is interest-rate fluctuations. Few industries are as sensitive to interest-rate fluctuations as real estate is, the firm said. Short-term loans tied to the Secured Overnight Financing Rate (SOFR) are likely to move in tandem with future rate cuts, but longer term loans linked to the 10-year Treasury yield will be less predictable.
Alternative capital will continue to play an important role in the CRE industry as $1.8 trillion in CRE debt approaches maturity by 2026. Many traditional lenders that employed extend and pretend loan strategies will be compelled to clean up their balance sheets, and private and alternative capital sources are poised to step in to bridge the gap for borrowers that seek to refinance at higher rates.
Commercial property insurance costs will continue to increase in 2025 and are projected to nearly double by 2030, according to Deloitte. Insurers are becoming more selective and imposing stringent requirements to mitigate their exposure. Landlords should focus more on risk management, optimizing coverage and exploring innovations to control expenses, said Colliers.
Finally, technology upgrades are likely to become a priority over the next few years as businesses gain greater economic clarity and confidence in their short- and long-term outlooks. AI-enabled tools, smart building technologies, enhanced data security, sustainability and energy management systems, robotics and automation and high-speed connectivity will be key advancements within the CRE environment.
“Investing in these technologies will give companies a competitive edge, optimize workforces, boost operational efficiency, and ultimately drive profitability,” said Colliers.
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Kristen Smithberg
Kristen Smithberg is a Colorado-based freelance writer who covers commercial real estate, insurance, benefits and retirement topics for BenefitsPRO and other industry publications.
