The Economic Impact on Commercial Real Estate in 2025: Trends, Challenges, and Market Insights

As we move deeper into 2025, the commercial real estate (CRE) sector finds itself at the crossroads of economic transformation, technological disruption, and shifting tenant expectations. After navigating years of global instability, inflation, and interest rate hikes, stakeholders are now recalibrating strategies for long-term growth in a more data-driven and sustainability-conscious market.

In this post, we dive into the economic impact on CRE in 2025, including key market trends, persistent challenges, and strategic insights, supported by current research and industry leaders.

Economic Landscape: Slower Growth, Sticky Inflation, and Global Tariffs

While the U.S. economy is not in recession, it's showing slower-than-expected GDP growth—currently projected at 2.1% for 2025, according to the International Monetary Fund (IMF). Inflation has decelerated from the 2022–2023 highs but remains slightly above the Fed’s 2% target, making it a continued headwind for CRE financing. Eve Capital agents are still getting loans funded thanks to our strong relationships with lenders and brokers.

The Federal Reserve’s March 2025 statement reaffirmed its cautious stance, signaling that interest rate cuts may not arrive until late 2025. With the benchmark rate hovering between 5.25–5.50%, capital remains expensive compared to recent history, directly impacting CRE cap rates which continue to climb, development pipelines struggling with tariff costs, and investment sales volume overall.

You can explore the historical context of Fed rate movements at the Federal Reserve Economic Data (FRED).

Rising Tariffs and Supply Chain Pressures

A resurgence of U.S.–China trade tensions in 2025 has led to tariffs on a range of construction materials, including steel, aluminum, and solar panels. As a result, CRE construction costs have risen by 8–12% year-over-year in some markets, according to Turner Construction’s Q1 2025 Building Cost Index. Developers are re-evaluating timelines and budgets, especially for large industrial and multifamily projects that rely heavily on imported materials.

In addition, tariffs on Chinese EV batteries and tech components are delaying tenant improvements and build-outs in industrial properties leased to manufacturers and logistics firms. CRE professionals are increasingly sourcing from Mexico and Canada under the USMCA to mitigate risks.

Key Trends Shaping CRE in 2025

Rise of Adaptive Reuse and Mixed-Use Conversions

According to CoStar, as of Q1 2025, the national office vacancy rate stands at 13.2%, marking a significant increase from pre-pandemic levels. This surge has prompted developers to explore adaptive reuse strategies, including office-to-residential conversions, to revitalize underutilized properties.​ Office-to-residential conversions are gaining traction, supported by initiatives like the White House’s Commercial to Residential Conversions Toolkit.

Demand is highest for mixed-use assets that include retail, healthcare, and wellness components. These assets not only meet tenant needs but also align with “15-minute city” planning models.

Surge in Secondary Markets and the “Zoomtown” Effect

The shift toward remote and hybrid work has catalyzed growth in smaller metros like Boise, Charlotte, and Nashville, where CRE values are rising faster than in coastal cities. PwC’s Emerging Trends in Real Estate® 2025 confirms that secondary markets are leading the way in multifamily and industrial development thanks to affordability, labor migration, and business-friendly environments.

ESG and the Green Premium

More than 80% of institutional investors now evaluate ESG criteria before purchasing assets, according to Deloitte’s 2025 CRE Outlook. Tenants are increasingly willing to pay a premium for LEED-certified buildings that offer lower operating costs, enhanced indoor air quality, and lower emissions.

Frameworks like GRESB and ENERGY STAR for Buildings are guiding CRE firms on how to integrate sustainability into operations and disclosures.

Challenges Facing CRE in 2025

Office Space Remains in Flux

Despite a gradual uptick in office attendance (now at 55% of pre-pandemic levels according to Kastle Systems’ Back to Work Barometer), uncertainty around long-term demand remains. Landlords are offering shorter lease terms, enhanced amenities, and flexible layouts to retain tenants.

The Urban Land Institute recommends repositioning Class B and C buildings to avoid becoming obsolete.

Insurance Premiums and Climate Resilience

CRE assets in high-risk climate zones face soaring insurance costs, up by as much as 35% in 2024 alone (National Association of Insurance Commissioners). Investors are increasingly turning to climate analytics platforms like Four Twenty Seven to assess long-term environmental risk and develop mitigation plans.

Constrained Lending Environment

Lenders are exercising extreme caution, especially for retail, office, and hospitality sectors. MBA’s Commercial/Multifamily Mortgage Debt report shows a 15% year-over-year drop in loan originations, with banks and life companies pulling back. Private equity, REITs, and alternative lenders are stepping in—but at higher rates and stricter terms.

Strategic Market Insights

• Industrial Is Still Strong: E-commerce and reshoring continue to boost demand for logistics, cold storage, and distribution centers. Check Prologis Research for sector insights.
  
  

• AI and PropTech Investments: CRE professionals are leveraging AI for predictive maintenance, lease analytics, and virtual leasing tours. Tools like VTS and Matterport are essential.
  
  

• Flex Space Is Here to Stay: With long-term space needs still uncertain, flexible office solutions from Industrious and IWG are expanding across metro hubs.
  
  

Final Thoughts

From tariffs and inflation to evolving tenant demands and ESG imperatives, commercial real estate in 2025 requires a more nimble, globally informed, and tech-savvy approach. For investors and operators alike, staying ahead of macroeconomic policies and supply chain disruptions will be key to thriving in this complex environment.

Stay informed. Stay agile. Invest wisely.

🔗 Helpful Resources:

• CREW Network – Research & Industry Insights

• National Association of Realtors® – CRE Trends

• Bisnow – Market Intelligence

• Buildout Blog – CRE Tech

• U.S. International Trade Commission