Speakers mixed good news and uncertainty at the “ULI New York: Real Estate Outlook 2025" event, held January 22, 2025, at the Stern School of Business at New York University in Manhattan by ULI New York in partnership with NYU Stern | Chen Institute.
“We are on the cusp of the next upturn in the real estate cycle,” according to the 2025 Emerging Trends in Real Estate® forecast, produced by PwC and ULI. The forecast credits lower interest rates in part for its improved outlook.
“The hope and the expectation is that we’re going to see rising returns, we’re going to see appreciation, we’re going to see more transactions,” said Bill Staffieri, partner with PwC, quoting from consensus in the Emerging Trends forecast. He joined several panels of local experts in conversation about the Emerging Trends report and their own outlook for real estate in 2025, both nationally and in New York City. Several hundred attended the event.
Since the forecast’s release last fall, it’s become less certain how quickly interest rates may drop. Federal policy is another uncertainty, according to speakers at the event. Panelists found their own reasons to look forward to recovering real estate markets around New York City, though.
Survey says . . .
The forecast, now in its 46th edition, is based on more than 1,600 survey responses from leading real estate industry experts and more than 450 interviews conducted with them, before the report’s release in October 2024. For a full breakdown of the trends, read our story in Urban Land.
When these responses were made, nearly two thirds (65 percent) of the respondents thought their firms were likely to experience “good” or “excellent” profitability in 2025. That’s up from less than half of respondents (41 percent) last year.
Lower interest rates helped fuel that optimism. In October 2024, when ULI published the forecast, the Federal Reserve had already cut its benchmark Fed Funds rate by 50 basis points. It cut another 50 basis points soon afterward. Nevertheless, rate cuts once expected for 2025—totaling another 100 basis points—are now likely to be delayed amid concerns that price inflation could inch higher.
“The likelihood of additional rate hikes, from an imminent perspective, is not very good,” said panelist Lisa Pendergast, president and CEO of the Commercial Real Estate Finance Council. Interest rates are still high enough to discourage new office development and keep many owners unwilling to trade out of existing loans with lower interest rates, if they can help it, according to Pendergast and other panelists at the event.
Population growth from immigration also fueled some of the optimism in the forecast, but possible changes in immigration policy make it unclear whether trends in population growth will continue in 2025 and beyond. The housing shortage is still severe enough to encourage new development—and keep the attention of real estate investors. The forecast presentation included six slides on immigration, climate migration, and housing.
Real estate investors will also have more financing options in 2025, as commercial mortgage-backed securities (CMBS) lenders make loans that banks decline to make. “The banks are not interested in balance sheet lending for office, and I think it’s going to be a long, long time before that opens up again,” said Sarah Hawkins, senior managing director and head of U.S. East at Hines, a global real estate investment firm headquartered in Houston, Texas.
Markets to watch
In the meantime, New York is experiencing its own remarkable turnaround. “Reports of New York City’s death were greatly exaggerated,” said Ricardo Ruiz, partner for New York asset and wealth management in the real estate practice for PwC.
The places with the best “overall real estate prospects” include most of the New York metro area, according to the survey, which rated 81 markets. The top third of the list includes Manhattan (11), Brooklyn (14), Jersey City (19), Long Island (20), Northern New Jersey (22) and NYC Other (26). In contrast, the 2022 Emerging Trends survey (released in October 2021) put Manhattan in 42nd place on its list of markets rated for overall real estate prospects. The 2024 list put Manhattan in 31st place.
“We are at the beginning of what will be an office recovery,” said Hines’ Hawkins. Absorption is nearly flat for office space in New York, after years of negative absorption as companies reduced space. “We’ve seen it in our own portfolio. Three years ago we saw tenants giving back 30 percent of their space when they were renewing or relocating, on average,” Hawkins said. “In the last 12 months, it’s been 10 percent.”
Plans to convert as much as 17 million square feet (1.6 million sq m) of older office building space into apartments is helping to reduce strain on older buildings in New York City, according to panelists. Continued job growth is also quickly filling new office towers in Manhattan. “You are seeing real rent growth, and it is spiking for new buildings,” Hawkins said.
Real estate investors should not expect relief from environmental regulations in places such as New York, which enacted tough standards for commercial real estate properties in recent years. “State and local leaders have rushed into a role of climate leadership,” said Rohit Aggarwala, chief climate officer for the city of New York.
Aggarwala notes that the last time President Donald Trump was in the White House, the New York City Council passed Local Law 97, which called for large commercial buildings to benchmark their energy use and—starting with 2024—exact fines on inefficient buildings. Aggarwala also warned that fines from Local Law 97—which become much larger, starting in 2030—are written into the law. Even a future mayor who is friendly to the real estate sector will have little ability to ease enforcement.
The morning presentations also included an example of how one owner of legacy office space has adapted to what office tenants want since the coronavirus pandemic.
“Previous down cycles had an ending—this one just continues,” said Kenneth Fisher, comanaging partner of New York City–based Fisher Brothers. His company owns a storied portfolio that includes several landmark 1960s and 1970s office towers in Manhattan. “These assets are generational. They have taken care of us, and we want them to continue to take care of us,” Fisher said.
When the pandemic struck, Fisher was already engaged in extensive renovations. Its older buildings needed to compete with millions of square feet of office space in new towers rising in Manhattan and even in secondary office markets such as Nashville. Using its own capital, Fisher started with elevators and HVAC systems and included competitive new amenities. “There was very little we could not do—except change the floor plates,” Fisher said.
The work was rewarded with several giant office leases. They put Fisher Brothers in a much better position than other owners that need to refinance the debt on older buildings. “It’s a lot easier to talk to lenders when you’re leasing—when you’ve already put the work into the buildings,” Fisher said.
