According to a study by TD Bank, professionals in the commercial real estate (CRE) sector expect that the decrease in property values will stimulate investments in the industry this year.
The research, which gathered insights from over 200 industry professionals, revealed that 76% of respondents believe the decline in commercial property values will lead to an increase in investments in 2025.
While the commercial real estate sector is facing a changing economic and regulatory landscape, investors continue to focus on interest rate fluctuations as the key driver in the market.
According to the study:
- 52% of CRE investors believe that potential interest rate cuts will have the greatest impact on the sector in 2025.
- Only 14% believe that the policies and regulations of the new presidential administration will be the primary factor influencing commercial real estate.
- The sector is also divided on how the rising costs of construction materials will affect new developments. While 70% of respondents anticipate higher material costs, only 32% believe it will significantly affect investment decisions.
Investor confidence appears to be tied to the return of employees to physical office spaces, which is reshaping demand for commercial properties.
The study found that:
- 68% of CRE professionals predict that return-to-office mandates from company leadership will be the most significant business decision affecting commercial real estate in 2025.
- At the same time, many investors recognize that traditional demand for office space will not return to pre-pandemic levels. Instead, they expect mixed-use properties to dominate the market, with 68% of respondents forecasting that these developments will gain the most traction this year.
“We are experiencing a moderate recovery in the office market, but that doesn’t mean the sector should quickly revert to its previous pace,” said Hugh Allen, Head of U.S. Commercial Real Estate at TD Bank. “Investors and commercial property owners are taking these changing expectations into account when investing in their next projects. This includes amenities like office gyms, expanded break rooms, and cafés—organizations want to create a sense of space for their employees, enhancing the experience of returning to work.”
Material Costs
While most professionals expect higher material costs in 2025, opinions remain divided on how this will impact investment strategies. Specifically, according to the TD Bank study:
- 38% expect continued investments in the sector despite rising costs.
- 32% believe that higher material costs will affect new projects, potentially slowing development.
Many investors are also adapting to what they consider the "new normal" in interest rates, with expectations that navigating inflation and interest rate fluctuations will be crucial for the timing of acquisitions and development projects.
“The commercial real estate sector will face new challenges in 2025, and a new administration will bring wild cards to the market, but this analysis shows that the right investors are ready to face these challenges head-on,” Allen said. “Uncertainty about inflation and interest rates will be key in determining the right timing for investors to move forward with acquisitions and developments,” he added.
Technology and Sustainability
Beyond real estate investments, CRE professionals are prioritizing technology and sustainability initiatives as key trends for 2025. According to the study:
- 60% of respondents believe predictive analytics will have the greatest technological impact on CRE.
- 32% see smart buildings as the next major innovation, while 28% highlight advancements in sustainability and efficiency as growing priorities.
- 55% of industry professionals forecast that smart buildings and other technology-driven sustainability efforts will be the most significant trend this year.
“Technology will drive commercial real estate into its next era,” said Allen. “Advancements in artificial intelligence and overall upgrades in how we utilize innovation in CRE will continue to have positive effects for investors who leverage them effectively.”
However, there remains uncertainty about how government policies regarding environmental protection will shape sustainability initiatives in CRE. 30% of respondents cited government regulations on environmental standards as the most important sustainability trend for 2025, emphasizing the potential for regulatory changes to affect long-term investment strategies.
