Top Trends in Commercial Real Estate – What to Watch in 2025

2025 Commercial Real Estate Trends

The commercial real estate (CRE) landscape continues to be shaped by macroeconomic trends, technological advancements and shifting consumer behaviors. Businesses, investors and developers should stay on the lookout for these top CRE trends, as well as make a point to discuss actionable steps with their financial and tax advisors to stay ahead.

1. Continued Use of Hybrid Work Models and Flexible Office Spaces

While many companies may be pushing for more in-office presence, the reality is that remote and hybrid work models are not going away any time soon. Even though the number of fully remote work positions has decreased from its peak during the COVID-19 pandemic, companies continue to generally prioritize smaller, flexible office spaces over more traditional setups. Tenants may seek shorter lease terms and shared workspaces to accommodate fluctuating workforce needs.

CRE companies should evaluate their current portfolio to identify any opportunities to reconfigure or repurpose office spaces. Also, work with tax professionals regarding potential tax benefits related to adaptive reuse or renovation expenses, and discuss potential long-term profitability of investing in co-working spaces.

2. Increased Focus on ESG Initiatives

Sustainability is no longer optional in CRE – tenants, investors and regulators will continue to demand properties with eco-friendly designs and operations. ESG compliance also impacts valuation and tenant retention. Consult with your tax advisor on incentives and credits for energy-efficient upgrades or renewable energy installations, and develop a comprehensive ESG strategy for new developments and existing properties.

3. Surge in Industrial and Logistics Real Estate

E-commerce growth and demand for faster delivery have intensified the need for logistics hubs and industrial facilities near urban centers. Data centers are in particularly high demand – cold storage and last-mile delivery centers are in demand as well. An analysis of market trends can help you identify any emerging hotspots for industrial real estate. Also, assess any zoning and tax implications for converting any underperforming retail or office space into logistics centers.

4. Technology Integration in Smart Buildings

Smart buildings equipped with Internet of Things (IoT) technologies are increasingly popular for their ability to enhance energy efficiency, security and tenant satisfaction, so consider how you can budget for any relevant technology upgrades. Your tax advisor can help you understand any depreciation benefits and deductions for these smart building investments.

5. Shift Toward Mixed-Use Developments

Mixed-use developments that combine residential, commercial and recreational spaces continue to gain traction, offering convenience in community. Before considering a mixed-use development project, review zoning regulations and incentives with your tax professional, and engage local stakeholders to align developments with community needs and preferences.

6. Adaptive Reuse of Distressed Properties

Vacant malls, offices and hotels are increasingly being repurposed into residential units, healthcare facilities or educational spaces to meet demand in underserved sectors. Redevelopment may require an innovative approach, where industrial and warehouse production can be integrated into a site along with complementary retail, multifamily and hospitality uses. This is because not all previously defunct spaces can support redevelopment for only retail and residential purposes, and they may require a new balance of uses. Look to identify underutilized assets in your portfolio and explore adaptive reuse potential with your financial advisor, as well as consult your tax advisor about credits and deductions related to redevelopment or historic preservation projects.

7. Urban Migration and Suburban Resurgence

Post-pandemic migration patterns have stabilized, but demand for suburban real estate remains strong as families seek affordable housing and quality amenities outside city centers. This also means potential opportunities for acquiring or developing properties in Opportunity Zones, which can present some favorable tax strategies.

8. Increase in Unaffordable Housing

Homeownership continues to be adversely affected by rising costs and housing shortages, leading to an increase in unaffordable housing. The multifamily sector will then be in greater demand, but declining construction of multifamily sites will create more affordability challenges. Consider any opportunities for multifamily sites, either for new construction or preservation, that fit your investment strategies.

9. Rise of Alternative Asset Classes

Asset classes like data centers and self-storage units are gaining popularity among investors due to their stable demand and high yield potential. These developments can help diversify your investment portfolio to include emerging asset classes, with potential tax advantages as a result – your financial advisor can help you research any incentives or grants available for these specific asset types.

10. Interest Rates and Inflation

Despite the fact that the Federal Reserve lowered the benchmark interest rate in both September and November 2024, economic uncertainty, rising interest rates and inflation are reshaping investment strategies in CRE. Transaction volume remains more stabilized, but buyers and sellers may proceed with more uncertainty and caution. Securing favorable financing and hedging risks is now more critical than ever. Your financial advisor can help you with cash flow analyses to evaluate the impact of higher financing costs, as well as keep track of the impact of inflation on property valuations and operating expenses.

Windham Brannon Can Help

Windham Brannon’s Real Estate Practice can help you align your CRE investment strategy with emerging trends, helping you remain competitive in today’s market. We leverage our knowledge of the industry as well as our technical expertise to help you unlock growth potential and decrease your tax liabilities, no matter the current industry trends. For more information or questions, contact your Windham Brannon advisor today, or reach out to Micah Greenberger.