2025 is almost here, so here is our best forecast for the Commercial Real Estate industry. In brief, there is optimism for both opportunities and growth, but at a slow and steady pace.
In an industry where investors rely heavily on debt, the success and resiliency of businesses, and consumer demand, interest rates and inflation obviously have direct and potentially significant impact on commercial real estate investors. Thanks in large part to the pandemic, we all learned how to do life from home: work, socializing, entertaining and dining. So, with inflation on the rise, the general public was already well equipped to hunker down. This attitude change has hurt businesses, at least in the short run. Unfortunately, interest rates are not predicted to come down anytime soon due to many factors that include the stock market booming and attracting more capital in equities. Because we are not anticipating rates to drop dramatically in 2025, investors should not gamble on being “saved” by lower rates. Having said that, because the Fed is fighting the countervailing forces of inflation and recession, we do not anticipate dramatic fluctuation of rates in either direction.
On the whole, we remain optimistic that we are trending in a positive, and steady direction. The rate-cutting cycle is underway (even if slowly) and inflation has started to ease to a more manageable level. The Consumer Confidence Index projects slow growth for the US economy, predicting a growth rate of 1.7% for 2025. This is less than the estimated 2.7% growth rate for 2024, but it is still growth in the right direction.
Where are the opportunities in commercial real estate? There is a strong demand for e-commerce and digital infrastructure (shipping centers, call centers, data centers, cell towers, etc.), industrial, senior housing and assisted care facilities, and hospitality (which tends to be a more cyclical trend).