'Lining Up To Be A Robust Year': Why Lee & Associates' CEO Is Hopeful About 2025

Since 2023, much of the commercial real estate industry has been living by the mantra “survive till ’25” as it navigated issues such as elevated interest rates and economic uncertainty. However, with 2025 just around the corner, there are signs things may be looking up.

According to J.P. Morgan Wealth Management, the news of the Federal Reserve’s 50-basis-point interest rate cut in September may boost the economy and spur more investment avenues for investors in the multifamily sector.

As CRE professionals take in this news, some may wonder when the right time to invest is. Bisnow spoke with Jeff Rinkov, CEO of CRE brokerage Lee & Associates, about the impact of interest rate cuts and the upcoming presidential election on CRE and how the industrial, retail and office markets may fare going into 2025.

Bisnow: What does the Federal Reserve rate cut mean for the industry as a whole?

Rinkov: The interest rate cut was noteworthy for technical and sentimental reasons. From a technical standpoint, it is the recognition that monetary policy needs to be adjusted. It also indicates future decreases to the fed funds rate.

This encourages people to look forward to lower costs of capital, lower borrowing costs and the easing of monetary policy that will encourage more lending for a variety of capital expenditures. 

While I believe the technical importance is huge, I think the sentiment is that the Fed’s move was a start to a more accommodating monetary policy. 

Bisnow: How could the results of the upcoming election shape the future of commercial real estate? 

Rinkov: I think the election has the potential to either enhance or impair the industry depending on the outcome. But in the near term, it will be marginal. 

The real interest for CRE may be what’s going to happen to monetary policy. As much as politicians believe that monetary policy should be tied to politics, the Federal Reserve has remained completely independent, which is both by design and by law. We are likely moving towards an accommodative monetary policy that will encourage capital expenditure, not only for CRE but for all areas in our economy. 

The approach has been to wait and see on making decisions that impact acquisition, capital expenditure, disposition and development until after the election. 

This sentiment, however, might not be related exclusively to the election. It is possibly due to the nature of the slow pace of capital, given the fluctuation in costs of capital. We’ve seen stubborn capital markets and a lack of fluidity in capital markets related to investment sales and deployment of capital for acquisition and development. But it does seem that there is interest in waiting until after the election has been determined.

The outcome of the election is going to be important, but the performance of the consumer is going to be far more important. That ties in directly with monetary policy and the overall health of the economy, equities and real estate markets. 

Bisnow: Can we look forward to greater economic certainty moving forward?

Rinkov: The foundation for economic certainty is about as good as we've seen it for the last two years. Economic uncertainty was likely the greatest driver of the stall in capital markets and capital expenditure throughout the last 18 to 24 months. But I think we are heading toward economic certainty, whether that comes through a more accommodative Fed policy or through the result of the current election cycle as well as the general real estate cycle.

Economic certainty is going to make a significant return to the commercial real estate market. We have equities markets that are at peak levels, and they are setting records, so there's great stability in that market. Economic certainty has also been stabilized by throughput or input costs. In addition, oil prices have decreased, grocery prices have decreased and become more stable, and supply chain issues have been resolved. Also, the quick windup of a port strike has also been very encouraging to the economy.

Bisnow: How do you see the industry performing in 2025?

Rinkov: Current conditions will likely continue between now and Q1 2025. In addition to seeing additional fed funds rate easing, we’ll see a variety of asset classes performing really well. Lower borrowing costs and lower cap rates are going to help fuel the trading environment for multifamily investments.

We may look back at Q3 and Q4 2024 as being the low point in office participation. For office occupiers, the way up means greater stability. I don't think we're nearly at the point where office development would happen in any real way, but we should start to see some positive absorption in the office world, likely in 2025. 

The industrial market is going to resolve its overbuilding issue. While retail has been and will continue to be very successful, omnichannel retail will be the most dominant, so that brick-and-mortar and online presence can be perfected with the support of a nearby warehouse that can deliver goods in a 24-to-48-hour timetable. 

Whatever overbuilding that has occurred in the industrial sector is going to be really enhanced in 2025, meaning that vacancy rates will start to come down, and price stability and possibly even price growth will come back into the market.

We've seen many large e-commerce companies sign more million-square-foot leases in the first nine months of this year than they had all of last year. And certainly 2023 was somewhat of a down year, so any acceleration in that trend is very positive.

Once we get past the election and the stalling effect that it has had on decision-making, I believe that 2025 is lining up to be a robust year.

This article was produced in collaboration between Lee & Associates and Studio B. Bisnow news staff was not involved in the production of this content.

Studio B is Bisnow’s in-house content and design studio. To learn more about how Studio B can help your team, reach out to studio@bisnow.com.