Just Released: Viewpoint 2025 Jan 21, 2025

IRR’s Annual Viewpoint 2025 Report Highlights the Future of Commercial Real Estate Amid Uncertainty
32nd Edition Examines Key Economic Trends, Shifting Investment Strategies, and the Evolution of Major U.S. Property Sectors

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DENVER, CO — (Jan. 21, 2025) — Amid persistent economic shifts, commercial real estate professionals must navigate a landscape shaped by fluctuating interest rates, evolving investment strategies, and shifting demand across asset classes. Viewpoint 2025, Integra Realty Resources’ (IRR) latest annual trends report, delivers expert analysis and data-driven insights to help investors, lenders, and industry leaders with a forward-looking perspective on the market.

IRR CEO Anthony M. Graziano emphasizes the renewed focus on fundamental value amid economic recalibration. “After years of speculation and financial engineering, 2025 signals a return to fundamentals," he said. "Real estate investments will no longer be defined by access to cheap capital but by their intrinsic value and long-term impact on communities. Success in this evolving landscape will require resilience, strategic foresight, and a commitment to creating sustainable value rather than chasing fleeting trends.”

Now in its 32nd edition, Viewpoint 2025 showcases the expertise of IRR’s nearly 600 valuation advisors across the U.S. and Caribbean. This year, IRR partnered with economists Nick Villa and Nick Luettke of Moody’s to provide an in-depth analysis of key macroeconomic indicators, along with insights on major property sectors, highlighting trends and opportunities expected to shape property performance and valuations in the year ahead.

“In 2025, commercial real estate investors will need to balance optimism with caution," said Nick Villa, Economist at Moody’s. "While economic fundamentals remain relatively stable, persistent inflation and elevated borrowing costs will continue to shape investment strategies. With liquidity constraints still in play, disciplined underwriting and long-term positioning will be key, as financing challenges continue to impact transaction volumes and pricing adjustments throughout the year.”

IRR Viewpoint 2025 Market Insights

National Themes

The Economy: The U.S. economy continues to show resilience, driven by strong consumer spending and stable employment. However, geopolitical uncertainties, inflationary pressures, and evolving trade policies create a challenging backdrop for real estate decision-making in 2025.

Employment: While the job market remains strong, structural shifts—including automation, labor shortages, and hybrid work trends—are reshaping demand across real estate sectors. Office space continues to face pressure, while industrial and service-driven retail assets benefit from evolving workforce dynamics.

Interest Rates and Inflation: With the Federal Reserve signaling a cautious approach to rate cuts, borrowing costs remain elevated, impacting transaction volumes and asset valuations. Investors are adjusting to a "higher-for-longer" rate environment, favoring properties with strong fundamentals and stable cash flows.

Capital Markets: Tight lending conditions and rising refinancing risks continue to disrupt commercial real estate, particularly in the office sector, where CMBS delinquencies have hit record highs. Despite capital market volatility, well-capitalized investors are finding opportunities in industrial and multifamily sectors, while interest in adaptive reuse and distressed assets continues to grow.

U.S Property Markets

Office:

• The office sector remains under pressure, with the national office vacancy rate reaching a record 20.4% at the close of 2024, surpassing historic peaks​.
• Class B and C properties in central business districts (CBDs) face the greatest challenges, while high-quality Class A buildings in prime locations continue to attract tenants.
• Hybrid work models have stabilized, but lease expirations from pre-pandemic agreements are contributing to an extended adjustment period for landlords​.
• CMBS office delinquencies hit an all-time high of 11.47% in November 2024, surpassing even post-GFC peaks, signaling ongoing distress in the sector​.
• Despite challenges, some markets show signs of stabilization, with suburban and mixed-use developments offering resilience compared to traditional urban office spaces​.

Multifamily:

• Multifamily remains a stable asset class, but supply-demand imbalances persist, with some regions facing overbuilding pressures while others experience strong absorption​.
• Housing supply continues to expand, with 1.5 million new units expected by 2025, particularly in high-growth markets like Austin, Nashville, and Charlotte, where deliveries are outpacing demand​.
• Affordability concerns are mounting, with rent-to-income ratios exceeding 30% in many Sunbelt metros, challenging the region’s traditional cost advantage​.
• Operating costs are rising sharply, particularly in insurance-heavy markets across the South and West, placing added pressure on net operating income​.
• Cap rates have adjusted to reflect new borrowing conditions, with transaction volumes expected to remain volatile as investors assess long-term market fundamentals​.

Retail:

• The retail sector remains resilient, with only 24% of markets in recession and 36% in recovery, reflecting steady performance despite economic uncertainties​.
• Experiential and service-driven retail, including restaurants, bars, grocery-anchored centers, and health product stores, continues to drive demand, as consumer preferences shift toward in-person shopping experiences​.
• E-commerce growth has plateaued, suggesting a more balanced competitive landscape between online and brick-and-mortar retailers​.
• Neighborhood and community retail centers are maintaining stable occupancy rates, with modest rent growth across most regions, indicating continued investor interest​.
• Retail CMBS delinquencies remain elevated, particularly in the struggling mall sector, but strong fundamentals in essential retail categories provide stability​.

Industrial:

• The industrial sector remains strong but is undergoing a period of recalibration, with higher vacancies and moderating rent growth reflecting a shift from the explosive expansion of prior years​.
• Cap rates and discount rates have increased across multiple regions, as investors take a more cautious approach amid rising borrowing costs and economic uncertainties​.
• Vacancy rates are rising nationwide, particularly in markets with heavy new supply, though demand remains solid, keeping rental rates stable or growing modestly in key logistics hubs​.
• Consumer spending on goods continues to drive demand for warehouse and distribution space, reinforcing industrial real estate’s strong correlation with macroeconomic trends​.
• As the sector enters a phase of adjustment in 2025, investors and operators must navigate a cooling market with shifting supply-demand dynamics, focusing on long-term fundamentals and strategic asset positioning​.

Hospitality:

• The hospitality sector continues its post-pandemic recovery, but economic uncertainty, inflation, and rising labor costs are slowing momentum​.
• Revenue per Available Room (RevPAR) has increased by approximately 6% year-over-year, primarily driven by higher Average Daily Rates (ADR) rather than occupancy growth​.
• Weekday business and group travel are rebounding, helping offset a softening in weekend leisure travel, which remains a key driver of hospitality demand.
• While top U.S. markets have seen ADR increases exceeding 10%, performance remains highly market-specific, with some regions benefiting from sustained demand while others experience stagnation​.
• The long-term outlook remains cautious, with economic pressures and shifting travel patterns requiring operators to focus on operational efficiencies and strategic revenue management.

Specialty Property Reports

Healthcare & Senior Housing:

The sector continues to experience strong demand, with occupancy rates rebounding, particularly for REIT-owned properties. However, staffing shortages, rising labor costs, and high construction expenses are constraining growth. New development remains slow, and acquisitions are focused on smaller, distressed assets. Federal policy shifts—particularly in Medicaid reimbursement—will play a critical role in shaping investment strategies.

Behavioral Health Facilities:

Demand for behavioral health facilities—offering inpatient and outpatient care for mental health, substance abuse, and rehabilitation—continues to rise. Operators are increasingly repurposing existing properties, such as former assisted living facilities and hotels, to create treatment centers. Investment is shifting toward De Novo development, acquisitions, and joint ventures, with joint ventures gaining momentum amid capital constraints. Federal and state policies, including mental health parity laws and Medicare/Medicaid expansions, are fueling sector growth. With economic stabilization and potential rate cuts in 2025, investor interest and transaction activity are expected to accelerate.

For more information about Viewpoint 2025, or to access additional IRR research, please visit www.IRR.com