This past fall, the Counselors of Real Estate (CRE), an international consortium of real estate problem solvers, released its top 10 issues likely to affect the commercial real estate industry in 2025. Here are numbers 1 through 5.
1. Political Uncertainty
In the United States, the new Trump administration is likely to usher in both challenges and opportunities. Streamlining or eliminating regulatory processes could expedite construction timelines, which could be especially impactful in the single-family and multifamily sectors. On the other hand, the president’s stance on international trade policy may have adverse consequences for commercial real estate development by increasing the cost of construction materials and labor.
2. High Financing Costs
While the Federal Reserve has lowered its benchmark interest rate by 75 basis points since last fall, elevated interest rates continue to cause uncertainty for both buyers and sellers and keep them on the sidelines. When buyers re-enter the market, they will concentrate on deals with higher cap rates.
3. Massive Commercial Real Estate Debt
In 2026, $1.8 trillion in commercial loans are scheduled to mature, and borrowers who took out loans at sub-4% cap rates might be hit with a 75- to 100-percent increase in debt service payments. This scenario will influence market dynamics in 2025, including competition and tenant retention in commercial real estate.
4. High Cap Rates
Global instability and supply chain disruptions may lead to a climb in cap rates in 2025, affecting inflation, housing affordability and monetary policy. According to CRE, investors should adjust their strategies to reflect specific market conditions rather than historical cycles.
5. Soaring Insurance Costs
Inflation, higher property values and natural disasters have driven up global property insurance premiums. In 2023, for example, only 31 percent of the $380 billion in losses were covered by insurance. Property owners will focus on risk management and appropriately sized coverage to lower expenses and protect their assets.
