2025 Outlook Report: Expect Recovery to be Uneven Across Property Types and Locations

Commercial real estate faced challenges in the first part of 2024 due to delayed interest rate cuts, election uncertainty, inflation, and stricter lending standards. However, after two rate cuts and legislative clarity following the election, investors across our markets emerged from the sidelines to move forward with deals because they believe 2025 will be a more business-friendly environment. As such, we are cautiously optimistic about recovering rent growth and demand for commercial property over the next few years. As fundamentals stabilize, pricing should improve.

The US economy exceeded expectations in 2024 with strong consumer spending, low unemployment, and easing inflation despite high borrowing costs. Even as hiring slowed, wage growth continued to outpace inflation and household wealth reached new records with net worth up $4.8 trillion and equity holdings up $3.8 trillion in 3Q24 (source: Federal Reserve). While consumers continued to spend in 2024, many have depleted their pandemic savings and are relying on credit cards, which are starting to show strain. Looking ahead, expect growth to be driven by higher earners while middle and lower-income consumers cut back.

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