As we enter 2025, the commercial real estate sector is poised for a potential resurgence, offering both challenges and opportunities. Interest rates, inflation, supply and demand dynamics, and evolving regulatory landscapes will significantly shape the investment environment.
Understanding trends across key asset classes is essential to positioning your portfolio for possible success in the coming year. This blog post provides a forward-looking analysis of the Office, Industrial, Retail, Multifamily, Storage, and Alternative asset classes to help you make informed decisions for 2025 and beyond.
1. Apartment Rents May Resume Upward Growth
After two years of excess new supply in many markets brought about by historically low interest construction loans, 2025 may see a tightening of supply as newly built units are fully absorbed. Per data released from CoStar, this trend became evident in late 2024 as annualized rent increases rose to ~3.5% in contrast to annualized rental rates of 0.9% in Q3 2023.
2. Top Apartment Investment Locations
Top factors to consider in planning apartment investments include:
- - High rental demand coupled with diminishing supply
- - Low tenant default rates
- - Population growth
- - Job Growth
- - Pro-business and landlord friendly states
- - Median home prices i.e., areas where it is more economical to rent versus buy
Based on reviewing many forecasts, I believe we may to see the best gains in 2025 in the following 10 markets:
- - Dallas, Texas
- - Tampa, Florida
- - Austin, Texas
- - Nashville, Tennessee
- - Raleigh, North Carolina
- - Las Vegas, Nevada
- - Phoenix, Arizona
- - Denver, Colorado
- - Columbus, Ohio
- - Birmingham, Alabama
3. Gradual Return to the Office
The office sector is undergoing a profound transformation as tenants reassess their space needs in light of hybrid and remote work trends.
With COVID now mostly in the rear view mirror, most employers are closely scrutinizing their past work from home policies, and many are concluding that their employees must shift back into more traditional office work environments. A growing number of studies show that many employees are 10% to 20% less productive when working from home.
However, oversupply of vacant office space in certain markets and the enduring popularity of remote work will continue to present risks that investors must carefully evaluate when considering commercial office investments in 2025.
4. Industrial Real Estate: Capitalizing E-commerce Growth
The industrial real estate sector continues to benefit from the sustained expansion of e-commerce. Strategic investments in last-mile delivery hubs and logistics facilities near urban centers are critical to meeting the rapidly growing demand for fast, efficient distribution. However, rising land and construction costs and ongoing supply chain disruptions pose challenges that require careful planning.
As automation and robotics become increasingly prevalent in warehouse operations, newer properties equipped with advanced technologies and leased to tenants with strong credit may be positioned to deliver the potential for stronger investor returns.
5. Retail Real Estate: Embracing Experiential Retail
The retail landscape is evolving, with experiential concepts taking center stage in 2025. Investors who reimagine traditional retail spaces as mixed-use developments—incorporating shopping, dining, and entertainment—can create vibrant community hubs that attract steady foot traffic.
Personalization driven by data analytics is becoming a key differentiator, enabling retailers to enhance customer engagement. Despite these opportunities, competition from e-commerce and shifting consumer spending habits continue to weigh on the sector.
Successful investment strategies will tend to focus on “essential retailers” who can blend innovation with a deep understanding of local market dynamics while integrating social media, web-based marketing together with a brick and mortar presence.
6. Storage is Poised for Potential Growth in 2025
Investing in well-positioned newer self-storage has emerged as one of the potentially more profitable and secure asset classes within investment real estate. Throughout past economic downturns and COVID, storage investments have historically proved to generally provide stable cash flow and high operating margins.
2025 may be a good year to consider investing in self-storage due to strong demand, operational efficiencies, and the development of newer facilities that rely on technology to drive down costs and improve the tenant experiences.
A growing number of our clients are attracted to storage investments to provide added diversification.
7. Alternative Real Estate Assets: Diversifying Portfolios
Alternative real estate assets may gain traction in 2025 as investors seek diversification. Data centers are emerging as a critical asset class fueled by the growing demand for cloud computing and AI applications. Healthcare facilities, including senior housing and medical offices, are benefiting from demographic trends such as aging populations.
8. Opportunity Zones 2.0
The Tax Cuts and Jobs Act of 2017 established the Opportunity Zone designation and investment program, which permits certain investments in lower-income areas to benefit from tax breaks. This program's goal is to use private capital from the sale of appreciated assets that could be invested in designated Opportunity Zone projects to provide capital gains tax deferrals coupled with potential capital appreciation.
The current Opportunity Zone program is set to expire in 2026. However, due to the success of the program in driving billions of dollars into needed new construction in generally disadvantaged areas, I believe we could see broad bipartisan support for an extension and expansion of the program beginning this year.
9. Growing Use of AI in Real Estate
2025 may be the year where investors begin to take advantage of artificial intelligence technologies to attempt to improve their ability to make better informed investment decisions. Expect to see the term “data analytics” pop up in a growing number of articles on real estate investing this year.
Data analytics generally refers to gathering and analyzing large amounts of data about markets trends, future growth and profitability potential, when to consider selling/buying, screening tenants, and striving to identify favorable markets and asset classes, among many items.
I believe we may to see new companies emerge in 2025 that will be able to assist investors and developers to utilize AI to inform decision making.
10. Real Estate Investment Securities
The popularity of investing in real estate securities may continue to grow in 2025 including the following:
- - Delaware Statutory Trusts (DST)
- - Real Estate Investment Trusts (REITs and UPREITS)
- - Income Funds
- - Development Projects
Along with continued exposure and education on the part of industry participants, growth of investments in real estate securities in 2025 could be fueled by the following:
- - Favorable track records of top industry sponsors
- - Desire for passive income potential especially from senior real estate investors
- - Estate planning including desire to efficiently pass assets to heirs
- - Tax deferral and avoidance through executing 1031 exchanges and Opportunity Zone investment.
How We Can Help
Please contact the professionals at FGG1031 for personalized guidance that can help you and your family strive to achieve your objectives in 2025 and beyond. Please schedule a meeting with me on my calendar. I'd love to hear your comments or questions.
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