How ‘not your typical cycle’ defines 2025’s commercial real estate market
Jan 16, 2025
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Industry experts Brian Klinksiek, Global Head of Research and Strategy at LaSalle Investment Management, and Ben Breslau, JLL’s Global Chief Research Officer, delve into the shifting landscape of commercial real estate for 2025. They stress the unique nature of current cycles, warning against historical comparisons. Topics include the rise of data centers, the boom in specialized housing, and the potential of industrial outdoor storage. They also offer insights on emerging markets and evolving office dynamics post-COVID.
The commercial real estate landscape of 2025 requires investors to reevaluate strategies, moving past historical patterns to embrace emerging trends.
Sectors like data centers and specialized housing present significant investment opportunities, benefiting from increased demand and evolving market dynamics.
Deep dives
The Dawn of a New Cycle in Real Estate
The commercial real estate industry is entering a new landscape that differs significantly from past cycles, marking a potential renaissance for investment opportunities. Historically, the workforce lacked experience in downturns, but understanding previous cycles can inform future strategies. The current environment has shifted toward increased clarity in pricing, as interest rates stabilize and align more closely with real estate valuations. This improved market sentiment, alongside the avoidance of a recession, indicates that the new investment cycle can thrive without drastic interest rate cuts, fostering renewed confidence among investors.
Diverse Trends in the Office Market
The performance of the office market varies greatly depending on location and the specific type of building, influenced by a post-COVID shift in work patterns. Regions like Asia and Europe saw quicker returns to office occupancy than the U.S., highlighting diverse market dynamics. As companies adapt their workforce strategies, there has been a notable uptick in demand for high-quality, modern office spaces, while lower-tier buildings continue to struggle. This flight to quality underlines that despite overall challenges, specific segments within the office market are stabilizing and even thriving due to firm corporate commitments to collaboration and in-person activities.
Investment Strategies and Future Opportunities
Investment decisions in commercial real estate are fundamentally driven by evaluations of required and expected returns, while recognizing emerging trends and regional characteristics. A spotlight is on data centers, where the relationship between supply and increasing demand is shifting the market balance towards scarcity. Meanwhile, investors need to be cautious about overpricing quality buildings, with a significant portion of the market still undergoing readjustments. Geographically, opportunities lie in the U.S., particularly in logistics and industrial outdoor storage, as well as in sectors across Europe and Asia that address housing shortages and capitalize on improving data transparency, setting a favorable stage for strategic investment.
Industry veterans Brian Klinksiek from LaSalle Investment Management and Ben Breslau from JLL dissect the complex landscape of commercial real estate in 2025. As the industry moves past the "survive till '25" mantra, our experts caution against applying historical patterns to this unique cycle. They explore booming sectors like data centers and specialized housing, discuss the potential of industrial outdoor storage, and analyze emerging markets.