‘The Skies Are Finally Clearing’ For CRE, Declares 2025 Emerging Trends Report From ULI, PwC

The tide is turning for commercial real estate, according to PwC and the Urban Land Institute’s Emerging Trends in Real Estate report for 2025, which declares that “the skies are finally clearing over commercial real estate” and that the time has come for the next market upturn. 

A new cycle is beginning, the report proclaims, but the interest rate cuts that could fuel a recovery typically come when an economy is struggling. The net result will be a slow, and in some cases grinding, return to prepandemic valuations. 

“While challenges persist across the real estate sector, there are signs of improvement after years of hardship,” Andrew Alperstein, a partner at PwC, said in a statement released with the report. “Industry optimism has grown in the last year, though there is an understanding that recovery will be gradual.” 

The report and survey found real estate executives are markedly more upbeat than last year. For the year ahead, 65% of respondents expect their firm’s profits to be good or excellent, up from 41% a year earlier. Just 4.6% of respondents expected abysmal or poor profits at their firm in the next year, down from 13.5% the year prior. 

The Impact Of Interest Rates

Real estate professionals broadly expect interest rates to continue declining, with 80% of survey respondents predicting commercial mortgage rates will come down more in 2025 and 75% expecting a further decline over the next five years. The rebound in values will be gradual, however.

“More transactions will be able to move forward, and more loans will be refinanced. That means more deal activity for brokers, investors, and lenders. That’s all good,” they wrote. “However, slower economic and job growth reduces growth in net operating income. Tenant demand may fall as job growth moderates, affecting space absorption, occupancy, and rent growth.”

Respondents to this year’s survey voiced more consensus and a more positive outlook than in the previous year, but uncertainty lingers, and a slip into recession could prove devastating for commercial real estate, said David Lynd, CEO of Texas-based multifamily developer and owner The Lynd Group.

“You have artificially high appraisals right now in the market and everyone's trying to prop up these values of yesterday. But yesterday your expenses weren't up 50%,” Lynd said. “You don't have a time machine, those expenses are up and they're going to stay up. Because rents have flattened or are going down, you're heading into a period where it's going to be very rough on value.”

Banks have helped prop up property owners through loan extensions and modifications, which Lynd, echoing the Federal Reserve Bank of New York, said had helped mask the extent of losses from commercial real estate debt that banks will eventually have to realize.  

“Everyone's waiting for a starter pistol, like 2008, for Lehman Brothers to fail or some big bank to go down,” Lynd said. “Real estate is being worked out in back rooms right now because everybody's saying ‘We're fine, we're fine.’ Anybody saying they're fine is a liar.”  

Hitting Bottom

Some investors have reached the conclusion that values have bottomed out, resulting in an uptick in capital markets activity in the quarter that just ended. The report expects this trend to continue.

Lenders underwrote $197B in new debt in the third quarter, nearly matching the $244B in total activity through the first half of the year, according to Avison Young. Investment sales revenue growth was up 22% in the third quarter at CBRE, with the firm expecting 30% growth in the fourth quarter.

“The consensus seems to be that — leaving aside downtown office buildings — at least prices are no longer falling, which is an important milestone,” the report’s authors wrote. “No investor wants to buy today what may be less expensive tomorrow, so evidence of price stability would motivate more investors to reenter the market.”

Lynd expects it will take longer for rate relief to manifest, and that’s likely to put pressure on owners who secured short-term loan extensions expecting a faster climb down of rates, especially in the multifamily space.

“Any loan coming due in the next year to two years has a value problem because rents haven't grown enough to outpace expenses,” he said. 

Settling In After Relocation

The pandemic strengthened migration patterns that were already moving Americans away from Northern cities and into the Sun Belt. While the pandemic’s fastest-growing cities continue to attract new arrivals, PwC and ULI researchers noted that the frenzy of relocations has subsided.

Cities like Atlanta, Dallas and Houston are continuing to see moderate population growth, but it pales in comparison to pandemic levels, the report’s authors wrote. Austin and Phoenix went from being fast-growing cities to seeing barely positive growth. Some key Florida markets, including Orlando and Tampa, have seen their populations decrease after a pandemic boost.

Even as their growth rate slows, Sun Belt cities still dominate the ranks of the study’s top cities for overall real estate prospects. Dallas leads, followed by Miami, Houston, Tampa, Nashville, Orlando and Atlanta. The first northern city to make the list is Boston in eighth place, three spots ahead of Manhattan but well ahead of Austin, which is in 15th.

This year’s top prospective cities are largely a reshuffling of last year’s cohort, which had Nashville, Phoenix and Dallas as its top three. Miami climbed the upper ranks year-over-year, jumping from 14th to second. 

“Whether it’s insurance or just cost of living, that gap has closed somewhat between the Sunbelt and some coastal markets,” a research director at a real estate firm said to PwC and ULI in the report. “You’re not going to see massive migrations in the next few years.”

Housing Is Still Unaffordable

For the eighth consecutive year, PwC and the ULI called out housing affordability as a defining issue in the commercial real estate sector. 

The problem was the top social or political issue concerning respondents to the report’s survey, beating political extremism and immigration policy by a wide margin. 

Home values nationally are up roughly 50% since the onset of the pandemic — more than twice the increase in median worker earnings — and home prices continue to set record highs even as more executives and policymakers are recognizing the issue as a crisis. 

“While the growing attention is welcome, prospects for improvements still seem bleak, particularly in the near term,” the report’s authors wrote. 

The upcoming year is projected by PwC and the ULI as the start of the next market cycle, an uncertain pivot point where, if all goes according to plan, interest rates come down at a measured pace, inflation stays low, unemployment doesn’t tick up and the Fed nails its soft landing. 

The future remains opaque, but it’s perhaps more clear than at any time in the last decade. The report’s annual buy-sell-hold barometer clocked its highest buy rating and lowest sell rating in 2025 since the Global Financial Crisis.