Suffice it to say, this year’s tumultuous start has left many commercial real estate (CRE) professionals trying to make sense of it all. But experienced managers who understand the cyclical nature of CRE and the economy will be better poised in the long run.
“Understanding the cyclical nature of the economy — and truly appreciating the emotional lifecycle of commercial real estate — allows us in the industry to put the current situation into historic context and not hit the panic button,” says Marc DeLuca, KBS CEO and Regional President, Eastern U.S.
While it’s still too soon to call, there’s cautious optimism surrounding a comeback in the CRE market. According to a recent U.S. Investor Intentions Survey, 70% of investors are planning to ramp up their asset acquisitions in 2025, signaling a shift toward a stronger growth mindset for strategic investments and long-term value creation. This confidence is bolstered by upwards of $394 billion in investment capital sitting on the sidelines waiting to be deployed.
Let’s take a deeper look at the CRE market today, including key investment hotspots, in-demand property types, and emerging investment challenges and opportunities.
Top Investment Markets to Watch
This year, many investors are balancing high-growth secondary markets with discounted opportunities in gateway cities that offer repositioning and value creation potential. According to a recent CBRE survey, the top 10 most attractive markets for investment in 2025 are:
- Dallas-Ft. Worth, Texas, for the third consecutive year.
- Miami, Florida
- Boston, Massachusetts
- Atlanta, Georgia
- New York, New York
- Raleigh-Durham, North Carolina
- Austin, Texas
- Washington, D.C.
- San Francisco, California
- Phoenix, Arizona
What all these markets have in common is strong population growth, diversified economies, and general business-friendly environments. Gateway cities like San Francisco and New York City are regaining popularity among investors, offering strong economic fundamentals at more favorable entry prices.
Battle of the Sectors
The multifamily sector continues to dominate as the preferred asset category, with 72% of investors prioritizing them in 2025. We’re already seeing headlines for strong apartment acquisition activity, increasing 7% to $7.5 billion this year from 2024.
According to the National Multifamily Housing Council, the U.S. is facing a housing crisis and needs 4.3 million units by 2035 to meet demand, emphasizing the growing need for multifamily properties. This, coupled with urbanization and demographic shifts, will keep multifamily fundamentals strong, making this sector a very attractive investment choice for 2025.
Industrial and logistics properties, including warehouses and distribution centers, rank second on investors’ lists with 37% of players targeting this sector. This surge in demand is primarily driven by the rapid growth of the e-commerce industry, which is expanding at more than double the rate of brick-and-mortar stores, according to some estimates. There’s no indication that the e-commerce market will slow down anytime soon, and sales are projected to reach $1.72 trillion by 2027 — or 23% of total U.S. retail sales.
Supply chain resiliency will be an important consideration in industrial and logistics asset investment decision-making, and properties that have been optimized by technologies like AI, IoT, and machine learning are likely to gain top favor among investors.
About 27% of executives have identified retail as their preferred asset category in 2025 — representing a 5% increase from 2024. U.S. retail sales are expected to follow suit and grow by 4% in 2025 — thanks to more businesses adopting innovative technologies, reimagining loyalty programs, and improving supply chains to drive sales. This has sparked increased investment interest in the sector, particularly in the repositioning and revitalization of existing properties.
Retail focused on essential services, daily needs, and experiential or entertainment-based offerings are expected to do especially well. Mixed-use properties that combine retail with residential, office, or lifestyle spaces, will also remain attractive to investors due to their potential for diversified income streams.
The U.S. office market is also gaining some renewed investor interest after a couple of tough years with 13% of investors prioritizing this asset group in 2025 compared to 10% last year — indicating a potential turning point for the industry. We’ve already witnessed acquisition volumes jump 20% in 2024 to $63.6 billion — the first increase since 2021 — and should see that momentum hold steady.
High-quality, well-located office spaces in premier markets are expected to remain in demand, especially office buildings with robust amenities, sustainability features, and advanced HVAC systems that tend to experience healthier leasing activity compared to some of their counterparts.
For underutilized and older buildings, many investors are turning to office-to-residential reuse strategies to give new life to an office building — a move that so far shows great promise in core urban hubs like New York City.
As to the question regarding alternative asset groups such as data centers, self-storage, and life sciences, a recent survey indicates that only 20% of investors show some interest in these sectors. The preference is still strongly tilted toward traditional asset classes — multifamily, industrial, and retail.
Challenges in the CRE Market
Today’s economic uncertainty is creating a volatile environment for businesses, investors, and consumers alike. One of the biggest factors challenging CRE investor sentiment is interest rates. As of March 26, 2025, interest rates have risen to approximately 6.78%. These higher borrowing costs can reduce profitability, making it harder for investors to secure financing on favorable terms. The political sphere and its impact on the broader economy is also creating some investor hesitation.
When stocks are down or showing weakness — as they have in recent weeks due to uncertainty created by worldwide tariffs levied by the Trump administration — investors usually switch to bonds. But with China’s ability to sell off a large number of U.S. mortgage-backed securities (e.g., U.S. treasury bonds), investing in hard assets like CRE properties may be the better option.
Climate change also continues to be of concern, particularly in regions prone to natural disasters. With premiums soaring by 30% since 2020, the cost of insurance could have many players shying away from certain high-risk markets.
As the market adjusts, a strong understanding of evolving trends is critical for success. Investors should look to those recommending a cautious approach, focus on long-term sustainability rather than short-term gains. In 2025 and beyond, a more analytical and measured approach will be required to navigate existing challenges within the CRE landscape and the broader economic environment.
Key Strategies for the Remainer of 2025
Investors are increasingly shifting toward more moderate-risk strategies that target value-add and core-plus opportunities. Specifically, this means approaching properties as a one-of-a-kind deal that looks at individual asset characteristics as it relates to a specific market and local dynamics, rather than relying on a broad, one-size-fits-all approach. Also look for portfolio diversification across various asset classes, geographic regions, and sectors to spread risk and hedge against market fluctuations.
Additionally, there is a strategic push for repriced assets — properties that are undervalued or have experienced a temporary decline in value — that can be acquired at a significant discount and repositioned to meet future demand. This strategy could provide a strong upside potential once the asset is stabilized.
Investors may also look at more eco-friendly and sustainable real estate to reduce long-term costs and increase property values.
Conclusion: 2025 — A Pivotal Year for CRE Investments
The coming year does offer myriad opportunities for CRE, but there’s no crystal clear picture of how it will all play out. When investing in CRE, the goal is to strike a balance between high-level strategies, such as choosing the right region and property type — then zero in on the finer details of selecting specific assets. Investors who apply disciplined strategies and have a deep understanding of top markets should be well-positioned to capitalize on the opportunities CRE presents this year.
Learn more by visiting KBS.com/Insights.
