Dive Brief:
- Economic growth and improving real estate fundamentals are set to drive moderate recovery in real estate investment and leasing activity next year, according to CBRE’s 2025 U.S. Real Estate Markets Outlook.
- Shortages of prime space are set to emerge toward year-end, with a steady revival of offices in downtown U.S. markets expected in 2025, CBRE says. The firm expects pricing to rise for all property types, even office, as the market stabilizes and reaches a steady state.
- With anticipated shifts in occupier sentiment from a contraction-oriented approach to stabilization, or even expansion, and declining interest rates, the market is set for “the most optimistic outlook in years,” despite challenges with subpar office-using job growth, substantial sublease space and high vacancies in lower-tier office properties, CBRE says.
Dive Insight:
More than a third of the 225 corporate real estate executives who responded to CBRE’s 2024 Americas Office Occupier Sentiment Survey said they plan to increase their portfolio requirements over the next two years, while 25% expect their real estate portfolios to remain unchanged. While rightsizing will continue in the new year, its report detailing these findings suggests that most portfolio readjustments have occurred over the past four years.
These trends will support positive office absorption next year, CBRE says in its 2025 outlook. A healthy pipeline of tenants actively seeking office space is the precursor to a 5% rise in leasing volume in 2025, with smaller tenants — those looking for between 10,000 and 20,000 square feet — expected to account for more than half of total leasing volume, CBRE says. Additionally, many tenants will decide to renew their current leases due to high moving costs and difficulties in assessing landlords’ financial health, according to the report.
“I think we're going to be in a plateaued state for maybe the first half of the year where we're seeing good leasing activity, but we also have low deliveries to market, meaning that we stay with positive net absorption and vacancy,” Julie Whelan, global head of occupier thought leadership at CBRE, said in an interview. “I think that you'll start to see it tick down as hopefully the economy strengthens and more occupiers get more comfortable, not only doing the renewals that we're seeing, but also leasing new spaces as new businesses form and new headcount requirements are created.”
As landlords seeking to address the risk of vacancies work to negotiate favorable terms with large tenants, occupiers that do choose to relocate will prioritize buildings in prime locations with first-class amenities, CBRE says. The resulting divide between high-quality and lower-quality office assets will widen in 2025, with assets in vibrant mixed-use districts continuing to attract tenants, the report states.
Occupiers of Class A properties are the most likely to upgrade to better locations, while more cost-conscious tenants in the government, healthcare and education sectors will “continue to drive demand for a large pool of available Class B and C space,” CBRE says, noting that commodity buildings in less desirable and office-centric districts are at the greatest risk of losing tenants.
Prime spaces will also become more scarce due to a slowdown in new construction, with CBRE conservatively estimating that the vacancy rates in prime buildings will return to its pre-pandemic rate of 8.2% by 2027.
