What’s Next for Real Estate in 2025?
Among the many economic uncertainties in 2025 is whether the real estate sector will finally experience a comeback five years removed from the start of the COVID-19 pandemic. Is housing legislation still on the table? What will come of interest rates? Will office space continue its resurgence as an asset class? How will the adoption of AI reshape the way investors approach real estate?
Here’s how we as communications advisors are thinking about these key questions for the coming year.
Policy & Regulation
While Republicans have historically pushed a deregulatory agenda, President Trump’s increasingly populist approach to the economy and the nation’s ongoing housing affordability crisis mean real estate regulation might be on the table.[1]
More likely, however, President Trump will focus his energy on closing supply gaps that drive up the cost of housing, pledging to increase available housing inventory by “open[ing] up tracts of federal land for housing construction.”[2] Still, some of his policies like 25% global tariffs on imports of aluminum and steel, as well as proposed mass deportations could pose challenges to the market.[3] Nearly a third of the homebuilding workforce are immigrant laborers, according to the National Association of Home Builders.[4]
Markets
Meanwhile, what’s going on with interest rates? High borrowing costs continue to suppress the housing market, with mortgage rates now approaching 7% at the start of the year.[5] Although the Federal Reserve made some significant rate cuts in 2024, it now predicts just two in 2025 – half what it had anticipated last September.[6] Combined with stubbornly-persistent inflation, the 10-year Treasury yields – that mortgage rates track – have climbed and remain elevated, meaning mortgage rates are significantly higher than Q4 of 2024 and show no signs of coming down.[7]
American trade policy—and its link to inflationary pressure—will continue to be a confounding variable in the Fed’s efforts to ease monetary policy.[8]
Sector Outlook
Sector-specific outlooks provide evidence of real estate market resilience, across commercial, retail and industrial asset classes, driving confidence in the market.
Five years since the COVID-19 pandemic necessitated and popularized remote work across many economic sectors, President Trump’s executive order requiring federal workers to return to the office could signal a broader push for in-person work policies, and renewed growth in the commercial sector.[9] Indeed, a CBRE outlook study predicts a 5% increase in office leasing volume in 2025.[10]
But office isn’t entirely out of the woods yet. Nearly a trillion dollars in commercial mortgages matured by the end of last year, and the Mortgage Bankers Association reports that “the share of the balance of delinquent commercial mortgages increased for every major capital source during the third quarter of 2024.”[11] With bank lenders suffering from decreased liquidity and payment deficits, they are likely to face additional challenges in the upcoming year.
If commercial real estate does perform better with increased investment and activity, there will likely be positive spillover effects for retail.[12] As businesses increasingly adopt an omnichannel approach to retail in order to reach customers wherever they are, the rise of e-commerce is creating demand for the industrial sector, while brick and mortar still remains important.[13] Research shows that consumers prefer to buy luxury goods in-person, supporting demand for high-end retail shopping centers.[14]
Of course, market volatility makes it challenging to predict exactly what will happen across the different asset classes, but one thing that seems certain is that demand for infrastructure that supports modern living, including data centers, will continue to grow in 2025.[15] Some experts predict that supply of data centers will need to more than triple by 2030 in order to meet demand driven by the widespread adoption of AI, the cloud revolution and soaring cryptocurrency markets.[16]
AI & Real Estate
The real estate industry itself is making moves to adopt AI technologies, with significant potential to revolutionize the sector for investors, developers, operators and users alike. The McKinsey Global Institute estimates that generative AI (often used in building and space customization, for example) alone has the potential to generate $180 billion or more in value for the real estate industry.[17]
Real estate companies that successfully integrate AI will be poised to make more strategic, data-informed investments, respond more quickly to tenant needs, and reduce operational costs to drive greater capital efficiency in service of growth goals.[18]
The Bottom Line
In spite of market volatility, signs point to the fact that the 2025 real estate market will be characterized by resilience. Following five years of volatility since COVID-19 shocked the real estate market and broader global economy, the real estate market is settling into its comeback story across asset classes. Though recent tariff announcements have increased uncertainty, real estate has seen opportunities born out of downturns in the past and the sector has a long track record of innovation and reinvention which should serve it well in the coming year.
The Real Estate practice within FTI Consulting’s Strategic Communications segment in the Americas combines sector knowledge with communications expertise across the real estate and asset management sectors. Reach out to our experts for further discussions on this topic.
Related Solutions
References
[1] Jennifer Ludden, “U.S. homelessness jumps to another record high, amid affordable housing shortage,” NPR (Dec. 27, 2024), https://www.npr.org/2024/12/27/nx-s1-5241115/us-homeless-hud-housing-costs-migrants
[2] “Former President Donald Trump full press conference on the economy,” WFAA (Aug. 15, 2024), https://www.youtube.com/watch?v=mZFjBFrYGhY
[3] “Trump’s 25% Tariffs on Steel and Aluminum Will Drive Up Housing Costs,” NAHB (Feb. 12, 2025), https://www.nahb.org/blog/2025/02/trump-tariffs-will-drive-up-housing-costs ; Ana Teresa Solá, “Here’s what the Trump presidency could mean for the housing market, experts say,” CNBC (Nov. 11, 2024), https://www.cnbc.com/2024/11/11/what-trumps-presidency-could-mean-for-the-housing-market-in-the-us.html
[4] Natalia Siniavskaia, “Immigrant Share in Construction Highest on Record,” NAHB, Eye on Housing (Dec. 18, 2023), https://eyeonhousing.org/2023/12/immigrant-share-in-construction-highest-on-record/
[5] Vince Golle and Prashant Gopal, “US Mortgage Rates Approach 7% in Ominous Sign for Housing Market,” Bloomberg (Jan. 2, 2025), https://www.bloomberg.com/news/articles/2025-01-02/us-mortgage-rates-rise-to-highest-since-early-july-suppressing-demand
[6] Paul Davidson, “Fed lowers key interest rate by another quarter point but sees just 2 cuts in 2025,” USA Today (Dec. 18, 2024), https://www.usatoday.com/story/money/2024/12/18/fed-rate-cut-rates-slowdown-2025/77047771007/
[7] Jeff Ostrowski and Laurie Richards, “Mortgage rates drop to lowest point of the year,” Bankrate (Feb. 26, 2025) https://www.bankrate.com/mortgages/analysis/
[8] Howard Schneider and Ann Saphir, “Powell says tariffs could feed inflation, Fed must wait to determine the impact,” Reuters (Mar. 7, 2025), https://www.reuters.com/markets/us/powell-says-fed-has-time-wait-clarity-trump-policy-shifts-2025-03-07/
[9] Irie Sentner, “Trump imposes federal government hiring freeze, orders workers back to office,” Politico (Jan. 20, 2025), https://www.politico.com/live-updates/2025/01/20/donald-trump-inauguration-day-news-updates-analysis/a-government-hiring-freeze-and-end-to-remote-work-00199548
[10] “CBRE’s 2025 US Real Estate Outlook: Investment Recovery to Gain Momentum Despite Interest Rates Remaining Higher For Longer,” CBRE (Dec. 12, 2024), https://www.cbre.com/press-releases/investment-recovery-to-gain-momentum-despite-interest-rates-remaining-higher-for-longer
[11] Falen Taylor, “Commercial Mortgage Delinquency Rates Continue to Increase in Third Quarter of 2024,” MBA (Dec. 17, 2024), https://www.mba.org/news-and-research/newsroom/news/2024/12/17/commercial-mortgage-delinquency-rates-continue-to-increase-in-third-quarter-of-2024
[12] Al Brooks, “The Outlook for Commercial Real Estate (Even Office) in 2025 Is Positive,” Commercial Observer (Jan. 2, 2025), https://commercialobserver.com/2025/01/commercial-real-estate-outlook-2025-al-brooks/
[13] Radhika Ojha, “Navigating the retail industry’s evolving supply chain landscape,” ERP Today (Jan. 17, 2025), https://erp.today/navigating-the-retail-industrys-evolving-supply-chain-landscape/
[14] Al Brooks, “The Outlook for Commercial Real Estate (Even Office) in 2025 is Positive,” Commercial Observer (Jan. 2, 2025), https://commercialobserver.com/2025/01/commercial-real-estate-outlook-2025-al-brooks/
[15] Sebastian Obando, “Data center demand continues despite supply bottlenecks,” Construction Dive (Jul. 8, 2024), https://www.constructiondive.com/news/data-center-demand-supply-bottlenecks/720141/
[16] Katy McLaughlin and Pankaj Sachdeva, “What the real estate industry needs to know about data centers,” McKinsey & Company (Oct. 15, 2024), https://www.mckinsey.com/industries/real-estate/our-insights/what-the-real-estate-industry-needs-to-know-about-data-centers ; John Soroushian, “Taking Stock of AI Adoption Across the U.S. Economy,” Bipartisan Policy Center (Sept. 11, 2024), https://bipartisanpolicy.org/blog/taking-stock-of-ai-adoption-across-the-u-s-economy/#:~:text=The%20three%20sectors%20with%20the,1.4%25)%3B%20and%20transportation%20and ; Katy McLaughlin and Pankaj Sachdeva, “What the real estate industry needs to know about data centers,” McKinsey & Company (Oct. 15, 2024), https://www.mckinsey.com/industries/real-estate/our-insights/what-the-real-estate-industry-needs-to-know-about-data-centers ; Reuters Staff, “Bitcoin storms above $100,000 as Trump 2.0 fuels crypto euphoria,” Reuters (Dec. 5, 2024), https://www.reuters.com/technology/bitcoin-tops-100000-optimism-over-trump-crypto-plans-2024-12-05/
[17] Vaibhav Gujral, “Why generative AI has put the real estate industry on the cusp of change,” McKinsey & Company (Jan. 24, 2024), https://www.mckinsey.com/~/media/mckinsey/email/rethink/2024/01/2024-01-24f.html#:~:text=Using%20the%20latest%20analysis%20from,buildings%20are%20designed%20and%20constructed
[18] Matt Fitzpatrick, Vaibhav Gurjal, Anit Kapoor and Alex Wolkomir, “Generative AI can change real estate, but the industry must change to reap the benefits,” McKinsey & Company (Nov. 14, 2023), https://www.mckinsey.com/industries/real-estate/our-insights/generative-ai-can-change-real-estate-but-the-industry-must-change-to-reap-the-benefits
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