After two years of subdued performance, the U.S. commercial real estate (CRE) market is showing signs of a modest recovery in 2025. According to CBRE’s 2025 U.S. Real Estate Market Outlook, factors such as solid economic growth, near-target inflation, and stabilizing interest rates are contributing to positive capital appreciation across various sectors. While challenges persist, particularly in the office segment, other areas like retail and data centers are benefiting from long-term trends, offering renewed opportunities for investors.
Economic Growth and Market Fundamentals Drive Recovery
CBRE forecasts that the U.S. economy will experience above-average growth in 2025, driven by consumer spending, easing financial conditions, and productivity gains. This economic momentum is expected to support a moderate recovery in CRE investment activity, even as the 10-year Treasury yield remains above 4%. Capitalization rates are anticipated to compress slightly, providing investors with opportunities to secure long-term returns that have not been available for many years.
Sector-Specific Outlooks
- Office: The office sector, which has faced significant challenges due to the pandemic and the shift to remote work, is beginning to show signs of stabilization. CBRE anticipates a steady revival in America’s downtowns, with shortages of prime space emerging toward the end of the year. More than one-third of respondents to CBRE’s 2024 Occupier Sentiment Survey plan to increase their portfolio requirements over the next two years, supporting positive office absorption in 2025.
- Retail: Retail enters 2025 with the lowest vacancy rate of any CRE sector. Although retailers will further consolidate, growing demand in suburban locations and Sun Belt cities is expected. Institutional capital is projected to return to this sector, driven by favorable supply-demand dynamics.
- Industrial & Logistics: The industrial real estate market is set to benefit from e-commerce growth in 2025, with leasing activity returning to pre-pandemic levels. Vacancy will remain elevated in older properties as occupiers continue a flight to quality, but the market is expected to tighten toward year-end.
- Multifamily: After a surge in completions over the past two years, multifamily vacancy is expected to edge down in 2025 due to robust tenant demand. Economic growth will support household formation, and the high cost of homeownership will drive demand for apartments.
- Data Centers: Artificial intelligence, cloud computing, and the digital economy are driving extraordinary growth in the data center market. Demand for power will further strain the U.S. grid but is not expected to hold back development, with nuclear power starting to play a more central role.
Investment Activity and Capital Markets
CBRE reports that CRE investment volume increased by 14% year-over-year in Q1 2025 to $88 billion. Private investors were the biggest buyers, accounting for $51 billion of Q1 investment volume, followed by institutional investors with $20 billion. Inbound cross-border investment increased by 7% year-over-year in Q1 to $4 billion, led by the industrial sector.
The CBRE Lending Momentum Index also increased by 13% quarter-over-quarter and 90% year-over-year in Q1, buoyed by increased financing amounts. Banks were the biggest non-agency lenders, accounting for 34% of Q1 loan closings, followed by CMBS (26%) and life companies (21%).
Investor Sentiment and Strategic Considerations
CBRE’s 2025 U.S. Investor Intentions Survey indicates that many investors plan to buy and sell more CRE assets this year than in 2023. Their biggest concerns are higher-for-longer interest rates, tight credit conditions, and differing buyer and seller expectations. Despite these challenges, the recovery in investment activity is expected to continue, with market and asset selection becoming more important than ever as a new real estate cycle begins.
Analysts suggest that investors focus on sectors with strong fundamentals and long-term growth prospects, such as data centers, industrial properties, and high-quality office spaces. Additionally, understanding regional market dynamics and demographic trends will be crucial in identifying attractive investment opportunities.
Conclusion
The U.S. commercial real estate market is poised for a modest rebound in 2025, supported by solid economic growth, stabilizing interest rates, and sector-specific tailwinds. While challenges remain, particularly in the office sector, investors who strategically navigate the evolving landscape and focus on sectors with strong fundamentals may find compelling opportunities in the coming year.