Commercial real estate markets expected to show resiliency in 2025

Happy New Year, readers and welcome to 2025!

It’s that time of year when I get to predict what this year might bring in the world of commercial real estate. I have a high bar to reach since my 2024 crystal ball was, in fact, crystal.

So what might 2025 bring? Let’s get our Nostradamus on, shall we?

The state of the market

As we step into 2025, it’s clear that the ripples of 2024’s market conditions are still making waves. The industrial sector remains a mixed bag — demand for large logistics spaces has softened compared to its pandemic-era peak, but there’s still steady activity in the smaller spaces under 200,000 square feet. Many owners entered this year holding their breath as vacancy rates ticked up in certain submarkets.

Interest rates, the ever-present elephant in the room, continue to dampen transaction activity. The cost of financing has sidelined some buyers and made leasing a more attractive option for others. Meanwhile, sellers are navigating the gap between the prices they want and the reality of what the market will bear.

Prediction #1: The return of creativity

Necessity is the mother of invention, and in 2025, we’ll see more creativity in deal structures. Sale-leasebacks, options to buy, seller financing, and joint ventures will gain prominence as market participants find ways to make deals pencil. Sellers who resist adjusting to the current pricing environment will need to meet buyers halfway through innovative terms.

For tenants, expect landlords to sweeten the pot. More free rent, tenant improvement allowances, and flexible lease terms will be offered as owners vie for occupancy in a more tenant-favorable environment.

Prediction #2: Resilient submarkets

While some industrial hubs will see softer demand, others will shine. In 2025, we’ll see heightened activity in submarkets that offer strategic advantages — whether it’s proximity to major ports, affordable labor, or access to large consumer bases. The Inland Empire in California and areas in the Midwest and Southeast will likely see continued attention from both owners and occupants.

What’s interesting is the “flight to quality” within these markets. Class A properties with modern amenities, ample parking, and high clear heights, or the usable height of a building, will see increased demand because the price gap has narrowed between older, less functional spaces.

Prediction #3: The rise of reshoring

Last year, we started to see the effects of reshoring — companies bringing manufacturing and distribution closer to home. In 2025, this trend will accelerate as the new administration takes office — especially in the industrial sector. Proximity to end users, reduced reliance on overseas suppliers, and geopolitical stability are driving this shift.

What does this mean for commercial real estate?

Secondary and tertiary markets will shine as companies seek affordable land and labor. Don’t be surprised if you hear about booming activity in places you’ve never associated with industrial growth before.

Prediction #4: AI steps into the spotlight

Artificial intelligence will play a bigger role in commercial real estate in 2025. From automating lease management and analyzing market trends to predicting tenant behavior, AI tools are becoming indispensable. Brokers, landlords and investors who embrace AI will gain an edge in efficiency and decision-making.

One area poised for disruption is site selection. AI-driven platforms will help occupants analyze logistics networks, labor availability, and even local energy costs to identify the best locations. On the transactional side, expect faster due diligence as AI speeds up property evaluations, financial modeling, and risk assessments. Those who adapt quickly will find themselves ahead of the curve.

Prediction #5: Caution, not panic

If 2024 taught us anything, it’s that this market rewards patience. In 2025, investors will remain cautious but opportunistic. Those with cash will find opportunities to acquire properties at more reasonable valuations. Expect a slow-but-steady transactional pace as everyone waits for interest rates to stabilize and inflation to ease.

Occupiers, meanwhile, will be strategic, leveraging market conditions to secure favorable terms while keeping a close eye on operating costs. Gone are the days of hasty decisions; This year, it’s all about deliberate, informed choices.

Looking ahead

If I’ve learned anything from years in this business, it’s that predicting the future is equal parts art and science. The trends we see now — creativity in deals, resilient submarkets, reshoring, the rise of AI, and cautious optimism — are the best indicators of what’s to come.

So, dear readers, here’s a year filled with resilience, adaptability, and maybe even a few surprises. Let’s revisit these predictions in 12 months to see just how clear my crystal ball was this time.

Cheers to a prosperous 2025!

Allen Buchanan is a principal and commercial real estate broker at Lee & Associates, Orange. He can be reached at 714.564.7104 or abuchanan@lee-associates.com .