How Each Property Type Will Fare In CRE's Comeback Year

While the U.S. commercial market as a whole has weathered a difficult few years, different property types have reacted differently to the unpredictable forces at play in today’s economy.

With interest rates on the decline and more money making its way into the market, CRE seems to be at a turning point, according to the Urban Land Institute and PwC’s 2025 Emerging Trends in Real Estate report. The skies are clearing, the report says, but for individual property types, the rebound coming in 2025 will be nuanced.

For office, the most beleaguered property type, the coming months will be a slog. High-quality, well-located properties can still attract tenants, and major companies like Amazon and Starbucks have mandated a return to office. But even with these green shoots, the office sector continues to face a reckoning, according to the report. 

“Five years into the hybrid work era, the office market remains highly fragile,” the report’s authors wrote. “Occupier and investor sentiment are expected to remain weak in 2025, but the market is getting close to a bottom that could spur the next cycle.” 

Office leases continue to get smaller as employers prioritize high-quality, attractive spaces in a bid to lure workers back to their desks. The weakening of office demand is beginning to transform some urban cores, with elected officials pushing forward plans that create mixed-use downtowns where a mass of office towers once stood.

“The fundamental problem remains: the pandemic changed the way offices are used and companies continue to downsize despite growth in office-using jobs,” the report’s authors wrote.

Apartment across the country, and particularly in the Sun Belt, are another property type that is facing some challenges in the new year. The glut of new supply will continue to dominate conversations in 2025, ULI and PwC predict. 

Still, industry players remain bullish that the record level of new apartments will be absorbed, in part because the Fed’s runup of rates curtailed new construction in the last two years but also because of strong demographic indicators and job growth and the high cost of home ownership. 

Once a problem child, retail has made a comeback in terms of market fundamentals as a decade-long removal of unused retail space through demolition or conversion has evened out supply and demand, once more putting negotiating power in the hands of landlords.

But within retail, there are still some winners and losers.

Retail leasing remained robust in 2024 as a divide continues to grow between the most in-demand retail centers, which tend to also be the most well-located, and a cohort of older malls and other retail schemes that have struggled to stay afloat in recent years. 

Discount retailers, grocery stores and fitness clubs are expected to continue to dominate anchor leasing into 2025, while quick-service restaurants have become the preferred dining experience for Generation Z and are leading in smaller leases.

More than 2,000 quick-service restaurants are actively growing in the U.S., with plans to open nearly 11,000 stores this year, according to the Brown Book Guide to Retail and Restaurant Tenants.

The property types with the least glamorous architecture are poised for continued growth. After working its way through some softness brought on by a rush of new supply in 2024, the industrial market is expected to see demand return in 2025.

The sector’s largest tenants fill up excess space that was leased during the pandemic for resiliency purposes but are now being pivoted into the standard supply chain, the report’s authors predicted.

Data center demand is skyrocketing, and new supply will continue to be limited in 2025 by constraints on energy production. Even for traditional industrial users, access to power and water has become a key leasing consideration as warehouses become increasingly automated. 

“The mismatch between constrained supply and strong demand, which is likely to persist for the next five years or more, has resulted in virtually no vacant space in the major data center markets, rapidly rising rents, and super-charged profits for developers that can secure access to guaranteed power sources,” the report’s authors wrote.