2025 Commercial Real Estate Mid-Year Review

As we reach the midpoint of 2025, our outlook for the commercial real estate market remains consistent – that 2025 will likely present compelling opportunities across various commercial real estate sectors. Moderating interest rates, waning inflation, and slow economic growth points to an overall sluggish near-term economic environment as highlighted in our 2025 Commercial Real Estate Outlook: Capitalizing on a Generational Opportunity. Despite these lackluster conditions, commercial real estate has the potential to perform well. Given the recent reversal of valuation drawdowns, changing demographic trends, and strong sector-specific fundamentals, the stage remains set for what could be a standout year in commercial real estate.

Key Takeaways

• Macroeconomic activity has performed as expected given our outlook for slow growth and low inflation due to aging demographics and increased levels of debt.

• Real GDP declined at an annual rate of 0.5%1 in the first quarter, driven by massive imports as businesses rushed to beat potential new tariff restrictions.

• Inflation continues to decelerate overall, with June 2025 CPI growth of 2.7%, which may be artificially high due to the shelter component, and which was slightly higher than May’s reading due to tariff and geopolitical pressures.

• The commercial real estate market recovery has continued, with three consecutive positive quarters in the NCREIF ODCE Index.

• Transaction volumes are up year-over-year, suggesting a pick-up in market activity.

• Slow construction starts, affordability concerns, and migration patterns remain key trends to watch across the industry.