CBRE's 2025 US Real Estate Outlook: Investment Recovery to Gain Momentum Despite Interest Rates Remaining Higher For Longer

The U.S. economy looks set for above-average growth in 2025, driven by consumer spending. This growth and potentially persistent inflation may mean interest rates will stay higher for longer, according to CBRE’s 2025 U.S. Real Estate Market Outlook.

CBRE foresees several positive developments in 2025, including a modest increase in commercial real estate investment volume, a topping out of vacancy in the office market, and rising occupancy and rents in the multifamily sector despite robust new supply.

CBRE also anticipates reverberations for the retail and industrial & logistics sectors from higher U.S. tariffs on foreign goods. These range from a surge in inventories to beat tariffs, increased onshoring of manufacturing and consumers facing higher retail prices later in the year. In the data center sector, supply will continue to fall short of voracious demand.

“The U.S. economy has achieved a rare soft landing in the face of higher interest rates, and the outlook for growth in 2025 is increasingly optimistic,” said Richard Barkham, CBRE’s Global Chief Economist and Global Head of Research. “Risks to this outlook include the large U.S. fiscal deficit, which adds to bond market volatility, and the fragility of the Chinese economy.”

CBRE’s report details the company’s 2025 outlook for the economy and multiple real estate sectors.

U.S. Economy

U.S. companies and consumers could face higher prices due to tariffs on imports, but that likely will be mitigated by strong corporate earnings and the avoidance of tax increases under the Trump administration. The U.S. banking sector has stabilized such that a financial recession sparked by a major bank failure is unlikely. Debt capital will be broadly more available, although its cost will remain elevated, particularly for office investment.

Risks to the U.S. economy include a potentially slower pace of Federal Reserve interest rate cuts if inflation were to pick up again.

Global risks to the economy include a potential recession in China. Meanwhile, continued appreciation of the U.S. dollar would make U.S. exports more expensive and dollar-denominated loans harder to repay.

CBRE foresees growth in gross domestic product of 2% to 2.5% in 2025. CBRE forecasts inflation at or slightly below its 2024 rate at 2% to 2.4% in 2025, unemployment holding steady at 4 to 4.5% and the 10-year Treasury yield remaining above 4%.

Capital Markets

CBRE anticipates that investment activity will increase by up to 10% in 2025. Greater confidence in the economy and improved rates of return on property investment will drive activity, despite continued high cost of debt capital.

Capitalization rates – a measure of a property’s value derived from dividing its annual cash flow by its sale price – are likely to decline slightly in 2025. A lower cap rate translates to a higher value for the property. CBRE sees cap rates declining more slowly and stabilizing at higher percentages this time than in past cycles.

Office/Occupier

CBRE foresees stability for the office market in 2025 with slight improvement toward the end of the year. Contributing factors include a slowdown in new construction and a gradual shift in occupier sentiment to stabilization and expansion, rather than contraction. Lease renewals will account for a large share of leasing volume.

CBRE anticipates a 5% increase in overall office leasing volume in 2025 and a topping out of the national vacancy rate at 19%. Prime office space, which CBRE defines as the best buildings in each market, will get scarcer as healthy demand pushes prime-office vacancy to pre-pandemic levels of 8.2% by 2027. These market conditions will force occupiers looking to lease the best quality space to move quickly in 2025.

Retail

Asking rents are likely to rise in 2025 as the national availability rate remains below 5% due to minimal new construction in recent years. CBRE sees retailers signing longer-term leases to lock in favorable locations.

Retail activity – particularly retailer leasing – will gravitate to markets with population and job growth and infrastructure improvements, such as Phoenix, Austin, Dallas, Nashville and Charlotte.

Industrial & Logistics

Trade policy changes likely will boost demand for industrial buildings near the U.S.-Mexico border and with direct access to it. CBRE foresees demand for distribution facilities along the Interstate 29 and Interstate 35 north-south corridors, particularly in San Antonio, Austin, Dallas/Fort Worth, Oklahoma City, Kansas City, Des Moines and Minneapolis.

CBRE sees industrial leasing activity totaling slightly more than 800 million sq. ft. in 2025, which is below the pandemic-era peak in 2021 but still more than pre-pandemic levels. Third-party-logistics providers will account for more than a third of leasing volume as companies outsource their warehousing and distribution to maintain flexible supply chains.

Construction activity now is cooling after several years of prolific building that left the market with excess supply that it’s still absorbing. CBRE sees construction activity declining by more than half in 2025 from the 2024 total.

Multifamily

CBRE expects pressure from robust construction of multifamily buildings to start easing in 2025. That will help to lower vacancies and increase rents amid solid demand. CBRE foresees the vacancy rate declining to 4.9% in 2025 from 5.3% in Q3 2024 and average rents increasing by 2.6% in 2025.

A large share of construction completions in 2025 will occur in Sun Belt states. Of the 16 major U.S. multifamily markets, 10 have already passed their construction peaks and the other six will pass their peaks in 2025. CBRE sees multifamily construction starts 30% below the pre-pandemic average by mid-2025.

Data Centers

Demand for data center space will be white hot in 2025, fed by the ongoing AI boom. This will push vacancy to a record-low 2.8%, prelease rates to 90%, in-progress construction to a record high of 4,750 megawatts and lease rates to highs last seen in the early 2010s. Preleasing entails an occupier committing to lease space before its construction is completed.

The industry will continue to investigate alternative power sources such as nuclear.