The US real estate market is set to experience a significant rebound in 2025, supported by an economic soft landing and a favorable growth outlook. According to economists, the US economy is expected to grow at 2.4% in 2025, outperforming other major G7 economies. This optimistic forecast is bolstered by improved political conditions and potential policy changes under the Biden administration, which could further stimulate the real estate sector.
Commercial real estate, in particular, has shown signs of recovery in 2024, with stabilized prices and stronger fundamentals. The drop in construction starts (down 70% since mid-2022) is expected to lead to low supply over the next few years, while a growing economy and strong structural demand drivers could drive strong rent growth. As a result, prices in commercial real estate are projected to rise, especially if interest rates continue to decline.
Despite these positive indicators, there are still concerns. The public-private valuation gap for real estate is narrowing, and as valuations align, transaction activity in the commercial real estate sector may gain momentum. Real Estate Investment Trusts (REITs) are well-positioned to capitalize on this shift, with access to diverse capital sources, including equity, debt, and joint ventures.
However, the office sector remains a critical challenge. The US faces a significant amount of office debt maturing by 2026, particularly in cities like San Francisco, Seattle, and Boston, where office properties are struggling to secure financing. With the office market having been in decline for some time, there are hopes that it could follow in the footsteps of the retail sector, which has seen a recovery due to price corrections and limited new supply. The office sector is expected to undergo a slow recovery, with some sectors seeing opportunities for office-to-residential conversions.
Despite these concerns in specific sectors, other areas of the real estate market show strong growth potential. Data centers, industrial properties, and rental housing are expected to perform well in 2025. The demand for rental housing, driven by the “accessibility crisis,” is particularly notable, as Millennials—America’s largest demographic cohort—are reaching key household formation years. This demographic shift is leading to high demand for homes in desirable communities, creating opportunities for investors in rental housing and manufactured housing markets.
In summary, while challenges persist in certain segments of the market, such as office real estate, the US real estate sector is poised for growth in 2025, fueled by economic stability, policy support, and continued demand in key asset classes like data centers, industrial properties, and rental housing.
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