On the latest episode of America’s Commercial Real Estate Show, the show host sat down with John D’Angelo, Real Estate Solutions leader at Deloitte, to discuss Deloitte’s 2025 Commercial Real Estate Outlook. The conversation covered crucial national market trends and predictions, bringing insights that resonate across the industry, especially as we close out a turbulent few years in the real estate market.
2025 Outlook: Turning the Corner
Deloitte’s latest report titled *2025 Commercial Real Estate Outlook* indicates a cautiously optimistic sentiment within the industry. According to D’Angelo, the theme of the report is aptly described as “turning the corner.” This follows two years of low transaction volumes and uncertainty in the market. The report’s respondents—including 900 C-suite executives from 13 countries—indicate that the next 12 to 15 months could see an uptick in transaction activity as optimism returns to the market.
The host emphasized that he is already seeing increased interest in listings, with four times as much activity in recent months. This growth reflects the tightening of the bid-ask spread, which is narrowing as sellers become more realistic and buyers regain confidence, believing that market valuations have stabilized.
Interest Rates and Capital Costs
Interest rates are a significant factor in the future of commercial real estate, and D’Angelo noted that the cost of capital appears to be on the decline. According to their July 2024 survey, many respondents expect further rate cuts before the end of the year. This potential reduction in rates is expected to reignite investment activity, especially in sectors that have been waiting for cost efficiency to return to the marketplace.
Sector Focus: Where Will Capital Flow?
The conversation highlighted several real estate sectors poised to receive increased investment. At the top of the list are digital real estate assets like data centers, which D’Angelo noted are moving from “alternative” to “core” asset status. Multifamily properties and manufacturing facilities are also expected to attract significant capital, especially given the incentives provided by initiatives like the CHIPS Act and the Inflation Reduction Act.
On the flip side, certain sectors, such as senior housing and student housing, appear to be seeing less interest from investors. This surprised the host, who mentioned that senior housing activity has recently picked up in his own brokerage experience, though the broader market may take more time to see a significant shift.
Geographic Trends and Sustainability
One of the more surprising findings in the report is that cross-border capital flows appear to be stagnating, with most investors choosing to keep their money within their home regions. Additionally, sustainability, while still on the radar for many companies, is being viewed through a cost-efficient lens. D’Angelo mentioned that the focus has shifted toward projects with a near-term ROI, and interest in sustainability retrofits has waned due to concerns about profitability.
Challenges: Inflation, Construction Costs, and AI
Inflation and construction costs remain top concerns for respondents, especially given the rising costs of goods, labor, and materials. However, artificial intelligence (AI) is increasingly seen as a solution for operational efficiency in the industry. The adoption of AI, D’Angelo noted, is helping companies automate processes and shift employee focus to more value-added tasks. This shift is crucial, especially as the commercial real estate industry faces a retirement cliff, with 40% of the workforce expected to retire in the next decade.
Office Market: Optimism or Overvaluation?
One of the more debated topics was the future of the office market. While office real estate has struggled post-pandemic, the host shared his contrarian view that office demand could rebound faster than many expect. He predicts that certain office buildings may be repurposed or demolished, leading to a reduction in supply, while companies gradually increase their physical office presence.
D’Angelo agreed that the industry could see stabilization as businesses adapt to hybrid work models. However, the jury is still out, and much will depend on how quickly municipalities and developers can innovate in response to changing demand.
Some Final Thoughts
The episode ended on a note of optimism. As the market stabilizes and capital returns to commercial real estate, industry leaders like D’Angelo and the show host are hopeful that 2025 will mark a turning point for many sectors. While challenges remain, from inflation to geopolitical concerns, there is a growing sense that the worst is behind us and that commercial real estate could experience a revival in the coming year.
For professionals in the industry, this episode serves as a reminder to stay adaptive, as technological advancements and market shifts continue to reshape the landscape of commercial real estate. It delivers valuable insights from two industry veterans, providing a glimpse into the potential for growth and transformation as we approach 2025.