Commercial real estate is regaining momentum as the U.S. economy rebounds in the second quarter of 2025, driven by modest GDP growth and renewed confidence among investors and occupiers.
Economic forecasts from the Federal Reserve project U.S. real GDP growth of around 1.4% to 1.6% for the year, with steady disinflation and stable monetary policy providing a foundation for cautious optimism in commercial markets. Capital markets remain supportive as interest rates hold, preserving favorable financing conditions into the fall.
Demand is notably rising in secondary and tertiary office markets as technology firms and coworking operators search for flexible, lower-cost lease options. While Class A properties in major urban cores maintain strong tenant interest, lower-tier office spaces are benefiting from tenant relocations to suburban and smaller cities. Hybrid working arrangements continue to reshape corporate leasing strategies, prompting flight-to-quality among tenants seeking modern, amenity-rich spaces even outside downtown cores.
Leasing activity has grown across suburban business parks and industrial nodes, underpinned by robust consumer spending and manufacturing resilience. Industrial real estate remains one of the strongest performing sectors, supported by demand tied to e-commerce growth, nearshoring of manufacturing, and supply chain adjustments. Leasing volume in industrial markets is trending upward, particularly in well-located hubs that serve logistics and production needs.
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Although new construction is subdued amid uncertainties over tariffs and material costs, leasing gains are helping absorb existing inventory and support valuations. Analysts point to the continued attractiveness of multifamily, data center, retail, and industrial assets, while the office sector shows signs of stabilization following years of vacancy pressure.
An increasing number of investors and developers are turning to adaptive reuse strategies to reposition underutilized retail and office buildings. Vacant malls, big-box stores, and aging office towers are being transformed into last-mile logistics centers, medical clinics, and mixed-use developments that better align with current demand. This repurposing not only revitalizes otherwise dormant assets, but also taps into emergent growth sectors such as healthcare delivery and efficient e-commerce fulfillment.
Healthcare tenants are particularly active in converting retail and office spaces into clinics, outpatient centers, and hybrid telehealth facilities. Developers favor these sites due to their central locations, parking access, and infrastructure readiness—features well-suited for medical use. Adaptive reuse projects contribute to community health infrastructure while providing long-term lease stability for property owners.
Retail redevelopment into distribution warehouses has surged, particularly in suburban markets near transportation corridors. Converting anchor-store spaces into logistics and fulfillment centers enables faster entry to market and capitalizes on proximity to population density. These last-mile properties are being widely adopted by both developers and investors seeking reliable industrial tenants.
While office vacancies remain elevated—often hovering around 20% in many major metro areas—the recovery in leasing has focused on flight-to-quality spaces that offer amenities and flexibility, particularly in secondary markets. Many landlords are offering shorter leases with upgrade options to accommodate hybrid and flexible workspace preferences.
Investment activity is picking up cautiously. Issuance of commercial mortgage-backed securities and CRE CLOs is rising, and sales transactions are increasing as stable debt conditions attract more investor interest. However, maturity-related risk remains elevated for office property loans as refinancing pressures persist in high-vacancy sectors.
In short, the second quarter of 2025 has brought signs of stabilization across U.S. commercial real estate. Demand is strongest in the industrial and adaptive reuse segments, while office markets show early signs of recovery through flight-to-quality and relocation to smaller markets. Retail remains resilient, especially through open-air shopping centers that attract consumer foot traffic and stabilize income streams.
Investors and occupiers alike view the current environment as one of transition and opportunity. As macroeconomic growth holds at moderate levels and credit conditions remain favorable, commercial real estate is transitioning from crisis toward cautious recovery. Markets with flexibility, adaptive potential, and strong fundamentals—especially those tied to logistics, healthcare, and quality office space in non-core cities—are capturing attention.
The outlook through late 2025 appears steady but selective. While construction remains subdued, leasing demand in key sectors is providing momentum. The success of adaptive reuse and continued economic stability may serve as the foundation for stronger growth into 2026.