PwC and ULI Americas released Emerging Trends in Real Estate® 2025, the real estate industry’s leading annual report. Now in its 46th edition, the forecast outlines new market dynamics, favored locations, and property sector opportunities influencing the overall health of the industry. Featuring exclusive data and insights gathered from more than a thousand top real estate specialists, the report covers a broad range of real estate topics affecting the U.S. and Canadian markets, from climate change to AI.
“In 2025, we expect lower interest rates will reduce borrowing costs, aid in price discovery, and ultimately encourage an uptick in [commercial] transactions,” said Angela Cain, ULI’s global CEO. “Sentiment is improving, although largely still erring on the side of caution, but we’re glad to see the early signs of capital markets poised for recovery, as firms look to longer-term strong fundamentals and adjust their strategy by market and property type. In this respect, a number of alternative subsectors are increasingly of more interest, although the need for housing and logistics [continues] to make these core sectors attractive.”
“[Although] challenges persist across the real estate sector, there are signs of improvement after years of hardship,” said Andrew Alperstein, a partner with PwC’s U.S. real estate practice. “Industry optimism has grown in the last year, though there is an understanding that recovery will be gradual. Looking ahead to 2025, firms should focus on managing short-term risks and adjust their growth strategies to succeed in this reawakening.”
A discussion of Emerging Trends in Real Estate 2025 at the 2024 Fall Meeting in Las Vegas at Resorts World, featuring from left to right: moderator Andrew Alperstein, partner, PwC; Sara Queen, head of RE Equity, MetLife Investment Management; Hessam Nadji, president and CEO, Marcus & Millichap; Jodie McLean, CEO, EDENS; and Michael Byrne, CIO and head of Private Equity & Debt for North America AEW Capital Management, L.P.
ULI/Mona Shield Payne Photography LLC
Presenters at the ULI Fall Meeting agreed with the findings that say the commercial real estate market appears to be on the verge of a key cyclical change.
“The time has come” is one of the overarching themes that stand out in the newly released Emerging Trends in Real Estate® 2025. The number of survey respondents who expect their firm’s profit to be “good” or “excellent” rose more than 20 percentage points, up from 41 percent last year to 65 percent this year.
“As we look ahead to 2025, we see a lot of green shoots,” says Sara Queen, head of Equity Strategies, Real Estate, at MetLife Investment Management. Queen was one of four panelists who discussed the report findings in Las Vegas on October 29. Capital that has been on the sidelines is once again showing interest in many property types, and the return profiles, given the reset in values, are more engaging for investors to re-enter the marketplace, Queen notes. “In general, we’re much more positive than we were, but there is a little bit of caution about what’s ahead over the next few months,” she adds.
Optimism that the commercial real estate industry is moving into a new cycle is fueled largely by expectations that interest rates are moving lower and capital available for acquisitions, refinancing, and even development—although still challenging—is likely to improve in 2025. The economic backdrop also appears solid, with low unemployment and positive GDP growth. More than 80 percent of respondents to this year’s Emerging Trends survey believe that commercial mortgage rates will decrease in 2025, and 75 percent expect rates to decline further in the next five years.
“It feels like it’s a whole different world than it was a year ago,” says Michael Byrne, chief investment officer and head of private equity and debt for North America at AEW Capital Management. As some of the challenges related to higher rates moderate, the “fear factor” that has existed is somewhat removed, and there is a bigger focus on finding opportunities for growth and making good new investments. On the capital-raising side, there has been interest in opportunistic investments for some time, but capital is starting to show interest in core strategies, notes Byrne.
Among the key trends highlighted in the report are:
- An expectation for falling interest rates and cheaper capital in 2025
- A new cycle is set to begin, marked by better liquidity and more deal-making
- Despite robust demand for space, the surge in supply is swinging power more in favor of tenants
- Migration patterns are moderating, with affordability and quality of life remaining key drivers for growth
- Challenges surrounding housing affordability continue to deepen and intensify, while solutions remain elusive
Growing interest in alternatives
Although industrial regained the top spot as the highest-rated core property type in this year’s survey, a stronger appetite for alternative property types and niche strategies is clearly evident. Two subsectors that stand out are data centers and senior housing. Data centers constitute the only property sector in the 2025 report that achieved a rating greater than four on a scale of one to five. Demand for data centers has exploded, along with AI and cloud computing, among other drivers.
The aging baby boomer population is driving demand for senior housing and creating bigger ripple effects in the economy and other sectors of commercial real estate. By 2030, all baby boomers are going to be 65-plus, and one in five Americans will be at retirement age. The growing aging population will shift migration patterns, consumer spending, and demand for health care and senior housing.
The challenge and the opportunity are that seniors are outpacing the needed unit supply growth for senior housing, notes Chuck DiRocco, director of real estate research at PwC. “It seems simple for investors—here’s an opportunity, here’s a gap. But it’s really not that simple,” DiRocco says. The growing middle market of 65-plus adult households is going to have limited household income, rising health care costs, and insufficient funds to pay for any assisted living, plus they’re going to live longer. “So, there are opportunities here, but we have to look at this middle market pricing point,” he says.
Affordable housing remains one of the largest social issues in every city around the country, and addressing shortages is top-of-mind for investors. “I wouldn’t say we’re on our way to solving it, but we’re making headway. There’s a lot of capital interested in investing in housing from luxury down to more affordable housing,” Byrne says. Panelists agreed that regulatory risks remain a big challenge, as they are discouraging private capital from investing in housing.
A big question that continues to hang over the office sector is what to do with obsolete, older buildings. Similar to what played out in retail, tenants are gravitating to higher-quality assets. Whereas owners could reimagine and redevelop retail, though, converting office buildings is more difficult. “The truth is, not every office building is distressed, but [ones] that are [will] struggle for quite a while, regardless of what urban metro you’re talking about,” says Hessam Nadji, president and CEO of Marcus & Millichap.
Supply issues shake-up Top Markets list
Another key trend to watch in 2025 is changing migration patterns. Migration that has benefited population growth in Sunbelt and suburban markets appears to be moderating and shifting. Housing affordability, cost of living, and quality of life continue to be key drivers for migration, while disruption due to climate change could have a bigger impact on migration patterns in the years ahead.
The annual list of “Top Markets 2025 for Overall Real Estate Prospects” recorded some surprising moves. Nashville gave up its number one position, dropping back to number five, while Dallas-Fort Worth rose to claim the lead. Despite escalating concerns—and insurance costs—related to hurricanes, Florida cities grabbed three of the top 10 spots.
2025 Top Markets:
1. Dallas-Fort Worth
2. Miami
3. Houston
4. Tampa- St. Petersburg
5. Nashville
6. Orlando
7. Atlanta
8. Boston
9. Salt Lake City
10. Phoenix
“In retail, we’re watching really closely, not only where millennials [want to live] but [also] where Gen Z wants to live. And in a lot of those markets, affordability is very important, cost of living is very important, and quality of life is very important,” says Jodie McLean, chief executive officer, EDENS. When EDENS takes its retail index and overlays it with the Emerging Trends’ Top 10 Markets, it is an almost perfect match because of those key factors, she adds.
“I think it’s amazing how some of the previously recognized leading markets . . . the Bay Area, for example, or Boston, [fell] out of favor, and [now,] all of a sudden, they’re the diamond in the rough,” Nadji says. According to Nadji, that shift in favored cities is, in part, because of the overbuilding in some SunBelt markets, but it also can be attributed to cities, such as Boston, Seattle, and Denver, that are rising because they’re rediscovering their economic momentum.
“We’re seeing the same positive trends everybody’s sharing in the report indicated,” Nadji says. “But I will say that it’s going to be choppy, and it seems like sentiment moves almost by the hour.” he adds. For example, the bid-ask spread that had started to narrow is creeping back into the market because the 10-year Treasury has increased since the Fed’s September rate hike.
Although there is improvement ahead, panelists agree that the path is not likely to be entirely smooth. There also will be significant opportunities for private capital to help address key problems and find solutions related to affordable housing, obsolete office space, and revitalizing of downtowns.
Explore the full 2025 report here via a new, interactive experience.
For more information about the report or to speak with someone at PwC or ULI about this year’s findings, contact [email protected] (PwC) or [email protected] (ULI).
