🔮 5 CRE trends that will shape 2025

👋 Hello, Best Ever readers! We’ve survived until 2025. Let’s make it a Best Ever year!

In our first newsletter of 2025, John Chang sees the future, data centers take over Atlanta, and retail rents overperform.

Let’s CRE!

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CRE HEADLINES

🔥 CRE Hot Streak: CRE showed continued momentum in November, with high-value property prices rising 1.3% — the fourth straight monthly increase. The annual decline slowed from -12.4% to -2.5%, while transaction volume grew 7.4%, signaling strong acceleration going into 2025.

💾 Data Center Dilemma: Atlanta's booming data center construction was up 76% in early 2024, sparking concerns about land use as Meta, Google, Microsoft, and X compete for space, threatening to crowd out residential and retail development in growing neighborhoods.

📈 Multifamily Growth: Multifamily rents are forecasted to increase 1.5% in 2025, driven by economic tailwinds, job growth, and increased consumer spending. While slower than the post-pandemic boom, the 1.5% growth signals a positive outlook for 2025.

⛰️ Industrial Peak: Industrial vacancy rates are expected to peak in mid-2025 after rising 250+ basis points since 2023. Key drivers include last-mile delivery optimization, automation adoption, and demand for smaller facilities amid trade uncertainty.

💸 Rent Control Conundrum: New rent control laws in Washington D.C.’s Maryland suburbs — which cap increases at 6% or 3% plus inflation for all units — led to a 13% drop in multifamily transactions, while neighboring Northern Virginia saw a 155% surge as investors redirected capital there.

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5 CRE TRENDS THAT WILL SHAPE 2025

It’s finally 2025, and according to John Chang, national director of research and advisory services at Marcus & Millichap, it could be one of the most seminal investment years on record. 

• What’s Happening: With a Republican sweep of Congress and the White House, potential policy changes create uncertainty around CRE. Deregulation could affect the availability and cost of debt capital, tariffs could reignite inflation, and immigration reform could impact the labor market. The fallout could threaten construction, the cost of debt, interest rates, and more.

• The Impact: “I think a lot of people are still waiting on the sidelines because they're uncertain about what's coming in the next year as the policies change,” Chang said on the Best Ever CRE Show this week. “So I think 2025 is a year to get active. I think there are opportunities that are going to emerge this year that we won't see for quite some time.”

Whether you plan on sitting on the sidelines or taking Chang’s advice to “get active,” here are five trends Chang is watching in 2025 — trends that will inform investors’ decisions throughout the new year:

• Labor Shortages and Wage Inflation: Tighter immigration policies coupled with a wave of baby boomer retirements could intensify labor shortages in 2025, resulting in rising wages that could drive up inflation and higher construction costs that will likely curb new development.

• Interest Rates: The interest rate outlook in 2025 is “a little dicey,” Chang says. While the Fed may not raise rates directly, inflation concerns could lead them to use quantitative tightening to maintain elevated long-term rates. Meanwhile, the 10-year Treasury is expected to remain above 4% — widely considered the "magic number" to unlock deal flow — potentially limiting transaction activity as investors grapple with higher borrowing costs.

• Insurance Costs: Natural disaster frequency has surged from an average of 3.1 billion-dollar events annually in the 1980s to 22.4 over the last five years, according to Chang, driving insurance costs higher across all property types. While single-family homes face the greatest impact, the cost burden spreads nationwide, suggesting elevated rates will persist through 2025 and beyond.

• Delinquencies: Outside the office sector, delinquencies remain limited in 2025, with most troubled assets being resolved through "extend and pretend" strategies or direct bank negotiations. Properties over-leveraged during 2020-2022 may face challenges, particularly those with deferred maintenance. While some distressed opportunities will emerge, buyers will need substantial reserves for renovations.

• Capital Flow: Chang expects capital flow to increase in 2025, but not as much as he initially predicted under a divided government. With the Republican sweep, he expects slower capital flow increases. However, rising consumer sentiment could drive increased apartment absorption, spurring a broader economic impact as new household formation boosts demand not just for multifamily, but also lifts retail sales and self-storage demand.

WHAT IT ALL MEANS

Chang forecasts 2025 to be another challenging year. But his advice is to monitor the trends he’s laid out, “get active,” and take advantage of the fact that many investors will be dissuaded by market headwinds.

📣 “Basically,” he says, “the investors are all standing on the sidelines, wringing their hands and waiting, while a select few are stepping forward and finding those opportunities that are available today. And over the span of the next five years, as certainty comes back... the property's prices will be bid up, the cap rates will likely come back down, and then those who moved in a cycle when everybody else was on the sidelines reap rewards."

🎙️ Listen to Chang’s full 2025 outlook here.

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WHAT’S YOUR 2025 CRE RESOLUTION?

What's your 2025 CRE resolution?

Are you looking to:

👉 Revamp your capital-raising approach?

👉 Find the best sponsor to place capital with?

👉 Discover strategies to boost your property's NOI and maximize returns?

👉 Learn what a new administration could mean for CRE in 2025?

There is no better place to achieve all this — and more — than the Best Ever Conference, where more than 1,000 investors come to learn, share, and level up together.

Today is the last day to take advantage of our New Year’s sale and get 25% off your ticket to Best Ever Conference IX!

Ticket prices will go up when the sale ends, so don't wait! Click below to choose your ticket, and use the code holidays25 at checkout to secure your discount.

*Discount does not apply to already purchased tickets or the GA Accredited Limited Partner ticket.

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WHERE RETAIL RENTS ARE OVERPERFORMING

Downtown retail availability rates exceeded suburban rates by 88 basis points in Q3 2024 — the largest gap since data collection began in the early 2000s, according to a CBRE analysis across 19 cities. This shift reflects remote work's impact on consumer spending patterns, with more purchases happening closer to home. 

A deeper look at the data revealed more nuanced performance variations among different retail districts:

• Prime business districts, where retail coexists with prime/trophy office buildings, lead in rent growth relative to market averages, benefiting from proximity to high-occupancy trophy office buildings.

• Vibrant mixed-use districts — a mix of urban residential, entertainment, street retail, and prime office — command a 74% rent premium over Prime Business areas due to their blend of residential, entertainment, and retail offerings.

• Non-prime business districts with no prime office space outperform market averages due to limited space availability and strategic locations near suburban office parks.

What it means: Based on current trends, investors should prioritize suburban retail properties near office parks, which capture increased spending from remote workers and where limited availability supports stronger rents. Downtown retail remains viable, if adjacent to high-occupancy trophy office buildings in prime business districts. Other downtown retail faces high availability rates due to reduced foot traffic, making it a less desirable target.

_{🏠 DEAL OF THE WEEK}
2X VALUE AND A FULL CASH-OUT REFI IN JUST 6 MONTHS

Zachary Gray and the team at Freedom Management doubled the value of this property and did a cash-out refinance to return all investor capital in just six months.

Here's how they did it 👇

🏢 Property Details: This 9-unit multifamily property was purchased in March 2024 and is located in West Warwick, Rhode Island. Four of the units were vacant.

💸 Finances: The property was purchased for $712,500. The team raised $210,000 in capital and secured a loan with a hard money lender at a fixed interest rate of 11.25% for one year and a 10% down payment.

💼 Business Plan: The team did a gut renovation of the four vacant units and performed light cosmetic upgrades to other units. They installed eight new heating systems, removed the outside deck, repainted the exterior of the building, recarpeted the common area, and installed a new fire alarm panel.

🍾 Results: Collective rents at the time of purchase were $6,500 with four units vacant and are now $13,535 with all nine units occupied. The property appraised for $1.52 million, so Zachary and the team did a cash-out refinance after six months of ownership and returned 100% of investor capital. The plan is to hold the property indefinitely and maximize returns.

If you have a deal you'd like to feature here, respond directly to this email with “deal breakdown.”

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