Commercial Real Estate Poised for a Rebound in 2025
After years of uncertainty, the commercial real estate market is finally showing signs of recovery. According to industry experts, 2025 is shaping up to be a turning point for commercial real estate investment, driven by job growth, steady consumption, and low unemployment.
A Shift in Market Sentiment
Marcus & Millichap CEO Hessam Nadji is optimistic about the sector’s prospects, citing a supply/demand balance that’s the best it’s been in years. While the office sub-sector has been a weak spot, recent data suggests that rents have plateaued and vacancy rates are declining. The Federal Reserve’s indication of two rate cuts next year will also help alleviate refinancing risks and boost capital activity.
Data Centers and Retail: Areas of Strength
Experts identify data centers and retail as two areas of strength within the commercial real estate sector. Data centers, in particular, are expected to see strong continued rent growth, driven by the growing focus on generative AI. Retail, on the other hand, is poised to outperform, with record-low vacancy rates and moderate revenue growth expected.
A Buying Opportunity in REITs
For investors, the current market presents a buying opportunity in REITs (real estate investment trusts). With cheap valuations and high-dividend yields, REITs are an attractive option, especially as rates on savings accounts and CDs drop. UBS’s Michael Goldsmith identifies several key themes across the REIT sector, including expectations for supply pressure to abate and a more active transactions market.
Top Picks for 2025
Bank of America is overweight Real Estate heading into the new year, citing higher yields, attractive valuations, and improving fundamentals. Top picks for 2025 include American Healthcare REIT (AHR), Cousins Properties (CUZ), and Welltower (WELL), as well as ExtraSpace Storage (EXR), Kimco Realty (KIM), Prologis (PLD), and Realty Income Corporation (O).
A Positive Backdrop for REIT Fundamentals
As the commercial real estate market gains momentum, the 2025 backdrop is shaping up to be positive for REIT fundamentals. With stable interest rates and a narrowing gap between buyers and sellers, public REITs are well-positioned to maintain their cost of capital and access to capital advantage over private owners.
Leave a Reply