Kevin Thorpe, Chief Economist of Cushman & Wakefield, released a rather upbeat forecast for the commercial real estate markets for 2025. In fact, he predicts growth in all CRE sectors, despite possible headwinds from new trade and monetary policies that might be implemented in Washington, DC.
In an article entitled “The Tide is Turning for CRE” Thorpe noted that the U.S. economy is in a “sweet spot” as it entered 2025, growing robustly while inflation has been working its way back to the Fed’s 2% target. He noted that Real GDP is on track to grow by 2.7% in 2024. Thorpe related that the supply side of the economy “is once again firing on all cylinders and productivity is up, which is enabling strong growth without reigniting inflationary pressures.”
He added, “Excluding the shelter component, which most agree has been distorting the inflation picture, the PCE has been below the Fed’s target rate of 2% for over a year. Inflation has largely been tamed at this point, and barring a major setback, the Fed will continue cutting rates, albeit gradually.
In what must be music to the real estate investment community, Thorpe wrote: “The U.S. economy is growing robustly. It’s time to retire the recession predictions; the economic fundamentals remain strong going into 2025.”
In terms of his outlook for individual sectors of the commercial real estate market, Thorpe predicted: “Demand for property remains mixed but is generally healthy overall. Demand for data centers, apartments, experiential retail and high-quality office is better than just healthy—it’s thriving.”
He also predicts the industrial sector, which saw demand decline in 2024 after an unprecedented surge, will see an increase in activity. “Still, the U.S. industrial sector is projected to absorb north of 100 million square feet in 2024, and this will pick up in 2025 as space needs grow in conjunction with e-commerce and increased consumer consumption. The rest of the office sector outside of the high-quality echelon, remains challenged.”
Thorpe related that the capital markets were subdued for most of 2024, “but green shoots are emerging as we head into 2025. REIT prices are up 30%-50% from a year ago, debt costs have improved by 100-125 basis points, CMBS issuance is up well over 150% from a year ago, and most importantly, real estate is generally looking fairly priced again.”
Other key takeaways from Thorpe’s 2025 outlook were:
· After two years of adjustments and declines, commercial real estate is generally fairly priced again. Pick your number: expected returns vs. corporate bonds, cap rates vs. treasuries, debt spreads—they all signal that CRE pricing is nearing or back to equilibrium across most product types.
· For CRE, the worst of the supply-demand imbalance is behind us. An inflection point is nearing, even for office, which is undersupplying the product occupiers want the most.
· President-elect Trump’s policies will create a mix of positives and negatives for the market, and it’s too soon to know what the net effect will be. However, property performed well under his last administration when similar policy initiatives were in play.
· There are downside risks to the outlook, but that is always the case. Prospects are good that the tide is finally turning for the CRE sector.
“There are strong indicators showing us that Orange County and the Hudson Valley are poised for growth across industry sectors and asset classes. On the industrial side, we’re seeing increased tenant interest and rent growth. We’re also tracking a pipeline of around 1.5 million square feet of new, class-A space expected to deliver or go vertical in 2025. Power infrastructure will remain the key variable tied to siting manufacturing, data centers, and robotic logistics centers, as we see demand increase locally and nationally” said Conor Eckert, SVP at the Orange County Partnership.
He also added that “there is similar demand in the housing market and a multitude of projects moving forward, clustered in the City and Town of Newburgh.”
