When market volatility is high, each day brings fresh uncertainty for the economy, making for a challenging environment. A new CBRE report examines how commercial real estate property categories performed in the first quarter of 2025 and considers how shifting economic conditions—such as ongoing tariff uncertainty, a softening labor market, rising prices, declining consumer confidence, federal budget and tax changes and persistent recession fears—could shape their outlook.
In the industrial and logistics sector, leasing activity remained relatively strong, with just over 189 million square feet of space leased. Third-party logistics providers largely drove this resilience. Notably, landlords are now beginning lease renewal negotiations as early as 24 months before expiration, a marked shift from the pandemic era when they delayed talks in hopes of capitalizing on rapidly rising rents.
CBRE anticipates that industrial leasing could slow further as tariffs fuel inflation and the labor market weakens. Despite tariffs on Mexico and Canada, trade with these top partners is expected to increase as China’s influence wanes, benefiting the I-35 corridor through cities like Dallas and Kansas City. The greatest impact on warehouses will be seen at the size extremes—those at least 500,000 square feet or as small as 100,000 square feet. Overall, CBRE forecasts a 5% to 10% reduction in industrial leasing volume in 2025.
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Office leasing saw an 18% increase from the fourth quarter of 2024 to the first quarter of 2025, surpassing 54 million square feet. Of the 40 largest U.S. office markets, 32 experienced improved year-over-year net absorption in the first quarter. Much of this demand was likely concentrated in Class-A and Trophy properties, reflecting the ongoing bifurcation within the office sector.
Looking ahead, trade policy and broader economic uncertainty may influence company decisions regarding the acquisition of additional office space. CBRE has already observed some tenants pausing deals and expects more lease renewals than expansions or relocations in the near term. However, those less affected by trade policy may continue to pursue new deals. CBRE projects a 4% increase in office leasing volume this year and suggests occupiers should act before market conditions shift further in favor of owners.
Retail availability edged up by 10 basis points to 4.8% in the first quarter, and for the first time since the third quarter of 2020, absorption turned negative. Supply chain disruptions from trade issues are expected to hit discount, big-box, and clothing stores the hardest. Higher tariffs will squeeze margins, though many retailers will likely pass some of the increased costs on to consumers. With consumers expected to spend less, leasing activity will probably slow, but the limited pipeline of new supply may help balance the market. Nevertheless, retail will continue to be significantly influenced by changes in the broader economy.
A stabilizing factor across property types is the contraction in the construction pipeline. CBRE estimates that building costs have risen 35% since 2020, aligning with GlobeSt.com’s estimate of a roughly 40% increase since 2019 based on Product Price Index changes. In the first quarter, retail completions totaled just 4.5 million square feet, the lowest level for the sector in more than a decade. Multifamily completions reached 70,000 units, while industrial completions fell to their lowest quarterly level since 2017 at 220 million square feet. Office space under construction stood just above 22 million square feet, below the amount recorded in the first quarter of 2020.
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