CBRE’s new report on the market outlook for U.S. real estate in 2025 presents a picture of cautious optimism with both opportunities and risks for investors.
It predicts investment sales will continue to recover, boosted by strong economic growth, with volume up by as much as 10% next year. However, investors will remain careful. Primary targets will be industrial and multifamily assets. “Assuming minimal disruptions from tariffs, retail will continue to attract investors with its strong fundamentals and we expect some portfolio sales will ensure a robust year for this property type,” the report commented.
At the same time, it said investors may have to confront headwinds. These include 10-year Treasury yields likely to remain above 4% due to a persistently large budget deficit, stimulative fiscal policy, and the potential for higher inflation.
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The report said that following Donald Trump's election, trade policy and shifting consumer spending patterns will particularly affect the industrial and retail sectors.
“Fiscal policy will also have some bearing on the cost of capital,” it cautioned. Big budget deficits could drive long-term interest rates to higher levels and drag down new investments. On the other hand, high interest rates could benefit multifamily if affordability challenges continue to force potential homebuyers to rent instead. Investors would have greater certainty about capital gains and other tax policies favorable for the industry.
Though cap rates are mostly driven by Treasury yields and rents, the risk premium and GDP growth are also important factors. The report anticipated that cap rates would “compress” slightly in 2025, falling slowly before stabilizing “at higher levels than in the last cycle” because of higher interest rates than in 2010.
“From their peak in 2024 to the end of 2025, industrial cap rates will fall by 30 basis points, retail by 24 bps, multifamily by 17 bps, and office by 7 bps,” the report forecast, noting that its prediction could be affected by changes in borrowing rates that affect activity and pricing.
It noted that cap rates are influenced by changes in the broader economy like capital market conditions, liquidity, risk, global asset demand, and economic expectations. Investors were advised to keep up to speed on broader macroeconomic drivers that influence the Fed's policy.
In addition, the relative strength of each market and asset can affect cap rates, making it even more important to choose them carefully.
Capital market recovery is also subject to other stress. Banks — especially community and regional banks — will continue to manage their exposure to distressed sectors like office and multifamily. Construction loans will remain hard to get. And geopolitical risks, errors in fiscal or monetary policy, and persistent inflation could also impact the market.
On the positive side, investors in office and multifamily could see unique opportunities due to lower asset pricing, especially for well-located Class A properties and increased apartment demand. The industrial sector could benefit from evolving supply chains and improved consumer spending “particularly as trade policy impacts the flow of goods entering and leaving the country.” Healthy consumer demand and less supply would benefit the multifamily sector as well as retail. “We also expect more interest in alternatives, especially data centers,” the report said.
Fresh foreign capital inflows could also be expected, though the strength of the U.S. dollar could present an obstacle.
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