Top Issues in Real Estate 2025

  1. Political Uncertainty: With elections in over

Here are the top 10 factors expected to impact real estate in 2025:

1. Political Uncertainty: With elections in over 70 countries, including the U.S., upcoming political shifts could bring changes in regulations, trade, corporate taxes, and policies on immigration and sustainability. In the U.S., there may be new debates on rent caps for corporate landlords or changes to 1031 like-kind exchanges. This climate of unpredictability could make real estate transactions more complex, with investors potentially delaying decisions while awaiting clearer signals on growth, inflation, and interest rates.

2. High Financing Costs: While interest rates have started to decline, they remain relatively high, keeping buyers cautious. With market valuations complex, many sellers hesitate to list, and buyers remain wary of high prices. A significant increase in distressed asset sales may still be anticipated due to maturing loans, yet CRE predicts cautious buyer activity, with a true market resurgence expected only in the next few years.

3. Upcoming Loan Maturities: Nearly $1.8 trillion in commercial real estate loans are set to mature by 2026. Although many lenders are offering temporary extensions, this solution may not last as banks face regulatory constraints and limited capital reserves. This looming debt could impact competition and tenant retention across property types.

4. Geopolitical Tensions: Global conflicts, including those in Ukraine and Gaza, contribute to ongoing economic challenges. Supply chain disruptions, inflation, and labor shortages add to uncertainty. Investors may factor in higher risk, adjusting cap rates accordingly, and are beginning to shift away from relying solely on historical market cycles.

5. Rising Insurance Costs: In 2023, natural disasters led to $380 billion in economic losses, only 31% of which were insured. With extreme weather events on the rise, insurance premiums have spiked, particularly impacting residential, hospitality, and senior living sectors. This trend is driving a shift in how properties are insured, as owners explore alternative solutions to manage soaring costs.

6. Housing Affordability Issues: With rising costs and an ongoing housing shortage of 4.4 million units, affordability remains a major challenge. Though multifamily rent growth has slowed, rents have increased by 45% over 15 years. More than half of renters are now “cost-burdened,” spending over 30% of their income on housing. The need for affordable housing and the preservation of affordable units will become even more critical as demand from young renters grows.

7. Advancements in Artificial Intelligence: AI adoption in real estate is accelerating, with a focus on data accuracy and the quality of algorithm-driven insights. However, challenges like fragmented data and local differences in markets remain. The growing computing needs of AI may drive more data center developments.

8. Sustainability and Resilience: With increasing climate-related disasters, sustainable and climate-resilient building designs are becoming more urgent. The U.S. currently lags behind Europe in regulatory standards for sustainable construction, but demand is rising for real estate solutions that protect against environmental risks.

9. Office Space Conversions: Office vacancy rates in the U.S. are projected to reach around 20% by late 2024. With high vacancies impacting city tax bases, there’s growing interest in converting office spaces into housing, healthcare, and education facilities. However, such conversions are often costly and complicated but could lead to the revitalization of urban cores.

10. Price Gap Narrowing: Recent pricing discrepancies between buyers and sellers may start to close as the worst of the pricing declines seem to be behind us. The market is showing signs of stabilizing, especially in core business districts, and the outlook for asset prices is becoming more optimistic across various property types.

These evolving issues point to an ever-changing real estate landscape in 2025, urging investors, buyers, and sellers to stay agile and adapt to both global and local dynamics.

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2. High Financing Costs: While interest rates have started to decline, they remain relatively high, keeping buyers cautious. With market valuations complex, many sellers hesitate to list, and buyers remain wary of high prices. A significant increase in distressed asset sales may still be anticipated due to maturing loans, yet CRE predicts cautious buyer activity, with a true market resurgence expected only in the next few years.

3. Upcoming Loan Maturities: Nearly $1.8 trillion in commercial real estate loans are set to mature by 2026. Although many lenders are offering temporary extensions, this solution may not last as banks face regulatory constraints and limited capital reserves. This looming debt could impact competition and tenant retention across property types.

4. Geopolitical Tensions: Global conflicts, including those in Ukraine and Gaza, contribute to ongoing economic challenges. Supply chain disruptions, inflation, and labor shortages add to uncertainty. Investors may factor in higher risk, adjusting cap rates accordingly, and are beginning to shift away from relying solely on historical market cycles.

5. Rising Insurance Costs: In 2023, natural disasters led to $380 billion in economic losses, only 31% of which were insured. With extreme weather events on the rise, insurance premiums have spiked, particularly impacting residential, hospitality, and senior living sectors. This trend is driving a shift in how properties are insured, as owners explore alternative solutions to manage soaring costs.

6. Housing Affordability Issues: With rising costs and an ongoing housing shortage of 4.4 million units, affordability remains a major challenge. Though multifamily rent growth has slowed, rents have increased by 45% over 15 years. More than half of renters are now “cost-burdened,” spending over 30% of their income on housing. The need for affordable housing and the preservation of affordable units will become even more critical as demand from young renters grows.

7. Advancements in Artificial Intelligence: AI adoption in real estate is accelerating, with a focus on data accuracy and the quality of algorithm-driven insights. However, challenges like fragmented data and local differences in markets remain. The growing computing needs of AI may drive more data center developments.

8. Sustainability and Resilience: With increasing climate-related disasters, sustainable and climate-resilient building designs are becoming more urgent. The U.S. currently lags behind Europe in regulatory standards for sustainable construction, but demand is rising for real estate solutions that protect against environmental risks.

9. Office Space Conversions: Office vacancy rates in the U.S. are projected to reach around 20% by late 2024. With high vacancies impacting city tax bases, there’s growing interest in converting office spaces into housing, healthcare, and education facilities. However, such conversions are often costly and complicated but could lead to the revitalization of urban cores.

10. Price Gap Narrowing: Recent pricing discrepancies between buyers and sellers may start to close as the worst of the pricing declines seem to be behind us. The market is showing signs of stabilizing, especially in core business districts, and the outlook for asset prices is becoming more optimistic across various property types.

These evolving issues point to an ever-changing real estate landscape in 2025, urging investors, buyers, and sellers to stay agile and adapt to both global and local dynamics.