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1、Emerging Trends in Real Estate2025 United States|CanadaEmerging Trends in Real Estate 20252Emerging Trends in Real Estate2025 United States|CanadaEmerging Trends in Real Estate 2025 iContents01 Introduction01 Notice to Readers03 Chapter 1:The Time Has Come06 Trend 1:Be Careful What You Wish For09 Tr

2、end 2:A New Cycle Begins13 Trend 3:Building Boom,Tenant Boon16 Sidebar:Demographics 22 Trend 4:Now Where?25 Sidebar:Extreme Cold27 Trend 5:Many Solutions,No Answers31 Sidebar:PropTechs Impact33 Issues to Watch35 Chapter 2:Property Type Outlook37 Trend 1:Industrial Smart Growth41 Trend 2:Data Centers

3、 44 Trend 3:Senior Housing 46 Trend 4:Retail Resilience 50 Trend 5:Life Science:Is Growth Sustainable53 Single-Family Housing56 Multifamily Housing60 Hospitality64Office68 Student Housing70 Self-Storage72MedicalOffice75 CRE Automation77 Chapter 3:Markets to Watch86 Dallas/Ft.Worth87 Miami88 Houston8

4、9 Tampa-St.Petersburg90 Nashville91 Manhattan92 Detroit93 Columbus94 Charleston95 New Orleans96 Market Descriptions103 Chapter 4:Canada104 Deals 109 Housing Affordability114 Climate Resilience117 Markets to Watch123 Property Type Outlook127 Best Bets for 2025129 Interviewees 133 Sponsoring Organizat

5、ionsEmerging Trends in Real Estate 2025iiEditorial Leadership TeamEmerging Trends Chairs Andrew Alperstein,PwC Angela Cain,Urban Land Institute Editors-in-Chief Chuck DiRocco,PwC Anita Kramer,Urban Land Institute Author,Chapter 1 Andrew J.Nelson Authors,Chapter 2 Garrick Brown,Retail Lesley Deutch,S

6、ingle-Family Housing Paul Fiorilla,Office and Multifamily Housing Dean Ramsthaler and Justin Starr,Hotels Ahalya Srikant and Timothy Lim,Industrial/Distribution Authors,Chapter 3 Andrew J.Nelson Market Profiles:Mary Ludgin Emi Adachi Jeff Bingham Jake Anderson Jim Breen Sam Carlson Mike Carney Erik

7、Hansen Shauncarlos Miller Dan Sindelar Annie Trucco Dan Vickerman Leslie Williams-Small Authors,Chapter 4 Laura Hildenbrand Glenn Kauth Peter Kovessy Mario Toneguzzi Doug Warren Contributors John Chang Eric Finnegan Mike HargraveGreg Lindsay William Maher Hilda Martin Lisa McCracken Carl Whitaker Au

8、gie Williams-EynonCody Young Senior Advisers Fred Cassano,PwC,Canada Frank Magliocco,PwC,Canada Braiden Goodchild,PwC,Canada Miriam Gurza,PwC,Canada Meghan Bossy,PwC US Steven Weisenburger,PwC US Strategic Project Managers Alyssa Gilland,PwC USAnna Richards-Velinou,PwC,Canada PwC US Creative Kristen

9、 Wilson,Art Director Chris Tepler,Art Director Sarah Brett,Designer Katy Van Est,Designer Shannon Andriese,Designer Dan von Lossnitzer,DesignerKennedy Bryne,PR&Comms ULI Editorial and Production Staff Libby Riker,Senior Editor Lauren Callaghan,Project Manager Emerging Trends in Real Estate is a trad

10、emark of PwC and is registered in the United States and other countries.All rights reserved.At PwC,our purpose is to build trust in society and solve important problems.Were a network of firms in 152 countries with over 328,000 people who are committed to delivering quality in assurance,advisory,and

11、 tax services.Find out more and tell us what matters to you by visiting us at .2024 PwC.All rights reserved.PwC refers to the PwC network and/or one or more of its member firms,each of which is a separate legal entity.Please see for further details.October 2024 by PwC and the Urban Land Institute.Al

12、l rights reserved.No part of this publication may be reproduced in any form or by any means,electronic or mechanical,including photocopying and recording,or by any information storage and retrieval system,without written permission of thepublisher.Recommended bibliographic listing:PwC and the Urban

13、Land Institute:Emerging Trends in Real Estate 2025.Washington,D.C.:PwC and the Urban Land Institute,2024.PwC Advisers and Contributing ResearchersAbhi Jain Adam Khdach*Adam RubensteinAlex BollierAlex Howieson*Alexis AulettaAli Abbas*Alina MinkovaAlyssa GillandAnastasia Ivanova*Andrew Alperstein Andr

14、ew Nickel*Andrew ParrilliAndrew Popert*Anna LeeAnna Richards-Velinou*Anthony Di Nuzzo*Arman Belorian Ashlynn HengelAva SchwienteckAvery Parti Bill Staffieri Blake Byl Braiden C.Goodchild*Brett MatzekBrian Caceda Brian KeidaBrian Ness Bryan Allsopp*Calen Byers Carly Stallwood*Charles Campany Chris Ba

15、iley Chris Dietrick Chris MillChristine AugustaChristopher Carlson Christopher Emslie Cody FarrColby EhrhartConnor DeeksCourtney SuppDan Genter Dan Picone Dan RyanDana McAleese*Dana Van WieDaniel DArchivio*Darren Speake*Dave Baldwin Dave Swerling David Neale*David VossDavid Yee*Dean Ramsthaler Derek

16、 Hatoum*Dillon WhiteDouglas Struckman Duncan BarnardDylan Anderson Dylan Shuff Ed HeitinEdouard Godin*Ed HeitinEmily Pillars Erica Pereira*Erin MacDonaldErnie Hudson*Erin MacDonaldEvan Cohen Fei ZhanFrancois Berthiaume*Frederic Lepage*Fei ZhanGloria Park Graham McGowan*Haley Anderson Harry AdamsHish

17、am BarakatIan Nelson Isha Grewal*Jack Brown Jackson PetittJacqueline Kelly Jake Wiley Janelle Tam*Jasen F.Kwong*Jason KaplinJeff Grad*Jeff Taveras Jennifer Kai*Jeremy Lewis Jeremy Pister*Joe ServentiJohanne Mullen*John Crossman John McKenna*John Mormile*John RosanoJohn Sheppard*Jonathan Osten*Jordan

18、 Adelson Jordan Samberg*Joseph M.Moyer*Josh CoxJosh Parks Julie Schlosky Justin Starr Kevin Fossee Kimberly BurtonKristen ConnerLaura LynchLauren GarrettLeah Waldrum Lee Overstreet Lee-Anne M.Kovacs*Lily TurnbullLou Defalco Luisa Breidt Manisha Chen*Marc Sena*Mark Rathbone*Martin Schreiber Matt McCu

19、llersMatt SeelyeMatthew Rosenberg Maxime Lessard*Maxime Lessard*Megan Andrews Meredith DeLuca Michael Shea*Mihai Homescu*Nadja Ibrahim*Natalie Cheng*Nicholas Mobilio*Nick Ethier*Nick Worrall Nicole Stroud Oliver ReichelPaul Hendrikse*Peter Harris*Philip BetheaPhilippe Desrochers*Rachel KellyRachel K

20、lein Rahim Lallani*Rebecca WirthReem Hamzeh*Renee Sarria Ricardo Ruiz Richard Martin*Richard Probert*Rick Munn Rob Sciaudone Robert Coard*Sabrina Fitzgerald*Sam Melehani Samay Luthra*Santino Gurreri*Sarah DonlandSarah Logan Scott McDonald*Scott Morrison*Scott Tornberg Serena LoveSimran Khattra*Spyro

21、s Stathonikos*Stephan Gianoplus Stephen Cairns Steven Weisenburger Tim Bodner Timothy ApostolouTom Wilkin Trevor D.Toombs*Veronic Doucet*Based in Canada Emerging Trends in Real Estate 2025 1Notice to ReadersEmerging Trends in Real Estate is a trends and forecast publication now in its 46th edition,a

22、nd is one of the most highly regarded and widely read forecast reports in the real estate industry.Emerging Trends in Real Estate 2025,undertaken jointly by PwC and the Urban Land Institute,provides an outlook on real estate investment and development trends,real estatefinanceandcapitalmarkets,prope

23、rtysectors,metropolitanareas,andotherrealestate issues throughout the United States and Canada.Emerging Trends in Real Estate 2025reflectstheviewsofindividualswhocompletedsurveys or were interviewed as a part of the research process for this report.The views expressed herein,including all comments a

24、ppearing in quotation marks,are obtained exclusively from these surveys and interviews and do not express the opinions of either PwC or ULI.Interviewees and survey participants represent a wide range of industry experts,including investors,fund managers,developers,property companies,lenders,brokers,

25、advisers,and consultants.ULI and PwC researchers personally interviewed over 450 individuals,and survey responses were received from almost 1,600 individuals,whose companyaffiliationsarebrokendownasfollows:Interviewees and survey participantsPrivate property owner or commercial/multifamily developer

26、:35.2%Realestateadvisory,servicefirm,orassetmanager:20.1%Construction,constructionservices,architecturefirm:7.7%Homebuilder or residential land developer:6.7%Private-equity real estate investor:6.5%Bank or other lender:6.3%Investment manager or adviser:2.6%Publicly listed real estate property compan

27、y or REIT:2.6%Private REIT or non-traded real estate property company:1.8%Other:10.7%Throughout this publication,the views of interviewees and/or survey respondents have been presentedasdirectquotationsfromtheparticipantwithoutname-specificattributiontoanyparticular participant.A list of the intervi

28、ew participants in this years study who chose to be identifiedappearsattheendofthisreport,butitshouldbenotedthatallintervieweesaregiven the option to remain anonymous regarding their participation.In several cases,quotes contained herein were obtained from interviewees who are not listed in the back

29、 of this report.Readersarecautionednottoattempttoattributeanyquotetoaspecificindividualorcompany.To all who helped,the Institute and PwC extend sincere thanks for sharing valuable time and expertise.Without the involvement of these many individuals,this report would not have been possible.Emerging T

30、rends in Real Estate 20252 Emerging Trends in Real Estate 20252Emerging Trends in Real Estate 2025 3The Time Has Come Theskiesarefinallyclearingovercommercialrealestatemarkets,even if some dark clouds still linger.Industry people are more sanguine than a year ago,though also realistic.Better times a

31、re ahead,but the healing will take time.Thesearesomeoftheconflictingyetgenerallyhopefulmessages revealed in our survey of industry experts and our interviews with industry leaders conducted for the 2025 edition of Emerging Trends in Real Estate.Anticipationofaninflectionhadbeenbuildingoverthepastyea

32、rasinflationstartedtoease,though the wait took longer than most real estate people had expressed hope for in our prior report.The pivot arrived in summer 2024 with eight magic words from Federal Reserve Bank Chair Jay Powell:“The time has come for policy to adjust.”With that pronouncement at the Fed

33、s annual Jackson Hole Economic Symposium in late August,Powell clearly communicatedtomarketsthatinflationhadbeentamedandthe COVID era of tightening was ending.The Fed followed through with an aggressive 50-basis-point(bp)cut in the federal funds rate(FFR)in mid-September.The SummaryofEconomicProject

34、ionsthataccompaniedtherateannouncement revealed that the Fed expects to cut the FFR by a further 50 bps by year-end 2024 and by another 100 bps in 2025 for a total of 200 bps.Reawaking Commercial Real Estate Capital MarketsThe cuts were eagerly awaited by the commercial real estate(CRE)community and

35、 much appreciated when they were finallyannounced.Aftertwoyearsoffallingpropertyvaluesand anemic transaction and lending activity,conditions seemed to stabilize this past summer.Though the Fed does notdirectlycontrolmarketinterestrates,financingcoststendto parallel moves in the FFR,particularly the

36、short-term debt that funds most real estate deals and development projects.A consultant to the CRE sector explained,“With interest rates coming down,it is likely that we are at the beginning of the next expansionary phase of the real estate cycle.”The Feds initial cut by itself will do little to bri

37、ng down short-termCREfinancingcosts.However,theFedpolicychangesends a powerful signal to investors and borrowers that financialconditionswillonlyimprovefromhere.TheFedmovealso helps reactivate CRE markets by bringing the price clarity“We are on the cusp of the next upturn in the real estate cycle,an

38、d now is the time to be thinking about planning,laying the groundwork for the next two to three years of growth.”Emerging Trends in Real Estate 20254needed to reduce bid-ask spreads and clear markets,as we discuss later in this chapter in the section on capital markets:A New Cycle Begins.Already,the

39、 industry mood is brightening.The share of respondents to the Emerging Trends survey who expect their firmsprofittobe“good”or“excellent”rosemorethan20percentage points,from just 41 percent last year to 65 percent this year.And those responses were the most common by a 2:1margin.Lastyear,aplurality(4

40、5percent)expectedprofitsto be just“fair,”and a substantial number(13 percent)feared they would be“abysmal”or“poor,”similar to the results in the year before that.Those middling to low responses fell sharply this year.Still,while expectations are optimistic,they are not wildly so.Even with responses

41、representing improvement from the past two years,overall expectations were almost exactly equal to their long-term averages.Investors and borrowers are not counting on a return to the halcyon prepandemic days of double-digit returns and abnormally low interest rates.As the headofCREforadataanalytics

42、firmsaid,“Weareinanewinterest rate regime.The neutral rate of interest is higher now than its been in the last couple of decades because of the demographic shifts,because weve exhausted cheap labor.”Cyclical Change Replaces Pandemic Shifts Last year,our central theme was“A New Era Comes into Focus.”

43、We described the growing consensus in the CRE community that market conditions and dynamics would not revert to the way they were before the pandemic.Rather,a new post-COVID world was emerging.Remote working and online shopping would endure.Those expectations have largely come to pass.U.S.property m

44、arkets are no longer undergoing the radical shifts in how tenants use space that we experienced in the immediate aftermath of the pandemic.We are where we are.One exception is the meteoric rise of data center demand,which has little connection to the pandemic and everything to do with themassiveexpa

45、nsionofartificialintelligenceapplicationsthroughout our economy.Thats not to say property markets are static.Change is the one constant in the CRE sector.But the jarring pandemic shifts seem to be behind us,and investors focus is swinging to the more normal cyclical changes that occur over the cours

46、e of business cycles.Tenant demand has recovered or surpassed prepandemic levels in most property sectors,yet vacancies are rising in several key sectors.In many markets,record levels of Emerging Trends in Real Estate 2025 5Chapter 1:The Time Has Comeconstruction are to blame.New supply is coming on

47、 line faster than tenants can absorb it,as we explain in the section on supply:Building Boom,Tenant Boon.However,concern is growing that tenant demand may not hold up much longer.The lower interest rates and associated benefitscomeatacost,asweconsiderinoureconomicoutlook section:Be Careful What You

48、Wish For.Interest rates tend to fall when the economy is slowing,portending weaker operating fundamentals for CRE owners.Slower income growthalsomakesrefinancingmorechallenging,evenifinterest rates are coming down.Thus,conditions for transactions seem to be improving just as property operations may

49、be set to weaken.Many investors are ready to pounce,especially with prices near cyclical lows.One senior investment banker said,“I think the environment right now looks a little softer from a fundamental perspective,but Id say its a favorable transaction market.If youre looking for an entrypointtobu

50、yassetsoverathree-tofive-yearperiod,wethink its an attractive entry point.”Other industry leaders we interviewed are not so ready to jump into the deep end of the transaction pool;they want to see more transactions to prove out pricing levels.The chief investment officerofaprominentinvestmentmanagem

51、entfirmnoted,“Iwould argue that the sentiment is probably improving,but were not totally there yet.Until we get to a wider consensus of where its going to be,and this is how to price real estate,I dont think youregoingtoseethefloodgatesopenontransactions.”Overall,the consensus is that the market rec

52、overy will be slow and gradual.The regional leader of another investment managerfirmconcluded,“Mysenseisthat2025willstartslow.Itll pick up as the year goes along,and itll be a decent year when everybody looks back at it.But I think 2026,2027,out there,it looks kind of exciting.”Emerging Trends in Re

53、al Estate 20256Be Careful What You Wish For Interestratesarecomingdownfinally!Thatswhatwealldesperately wanted,right?But at what cost?Interest rates were ultra-low for ultra-long,and the real estate industry came to depend on them.“Weve gotten spoiled by cheap credit for a long time,”admitted the fo

54、rmer headofoneleadinginvestmentmanagementfirm.“Peoplehave used leverage,not because theyve needed to,but because its been a tactical tool to enhance returns.”The Cheap Debt DietThe era of nearly free money began in the aftermath of the globalfinancialcrisis(GFC)of20072008,whentheFedfirstloweredthefe

55、deralfundsratetonearzeroinafranticattempt to revive the economy.Interest rates had barely started to rise when the Fed repeated its strategy a decade later to counter the downturn stemming from the COVID-19 pandemic.Cheap debt had become the new normal.Then it ended.Anxiety quickly took hold through

56、out the CRE community when the Fed took away the proverbial punch bowl and started to hike interest rates in March 2022 in the faceofsurginginflation.Investorsfearedthatevenlimitedexpected interest rate rises could undermine acquisition and development feasibility.In the end,the increases proved to

57、be anything but modest.The Fed ultimately hiked the FFR 11 times,pushing up the rate by more than 500 bps from near zero to over 5 percentand then kept them elevated longer than most anyone expected.The increase in the benchmark 10-year Treasury rate was less extreme,rising just over 300 bps.Still,t

58、he damage was done:Investor nervousness quickly progressed into alarm and then outright panic,and sales transactions dried up while lending volumes plunged.In the Emerging Trends survey conducted before the Feds initial rate hike,“interest rates and cost of capital”was the thirdgreatesteconomic/fina

59、ncialconcern.Inlastyearssurvey,it jumped to the leading concern,far outdistancing any other issue.In fact,its 4.70 score on a 1-to-5 scale was the greatest concern registered in any category going back over a decade of Emerging Trends surveys.Cheaper but Not Cheap DebtThat concern has eased but not

60、disappeared.“Interest rates and cost of capital”is still the leading concern raised by respondents in the latest Emerging Trends survey,but its importance has dropped 40 bps to 4.30.This lower but still elevatedlevelofconcernpartlyreflectsthetimingofthesurvey,which was conducted during the summer of

61、 2024.At that time,the cut was widely expected,but the Feds decision wasnt announced until mid-September.The sense of relief was palpable in the interviews with industry leaders conducted once the cut was all but certain,even if the 50-bp cut was not enough to alter deal economics fundamentally.“Its

62、 the signal more than the level.Its a psychological boost that the Feds effectively saying,Were pivoting.We think that weve done what we need to do.It doesnt change the math much,but it does change the behavior potentially,”said the head of product managementforaleadingCREanalyticsfirm.Additional he

63、lp is on the way.More than 80 percent of respondents to this years Emerging Trends survey believe that commercial mortgage rates will decrease in 2025,and 75 percent expect rates to decline further in the next fiveyears.Trend#1:Emerging Trends in Real Estate 2025 7Chapter 1:The Time Has ComeAs an in

64、dustry that relies heavily on leverage to get deals done(or simply boost returns),commercial real estate reflexivelyappreciateslow-costdebtandthelower,thebetter.However,astute investors know that interest rates donotmoveinisolationbutreflectmarketexpectationsoffutureeconomicandfinancialconditions.In

65、short,interestrates tend to fall when the economic outlook darkens,portending deteriorating operating conditions for CRE properties.Indeed,the Fed lowers interest rates expressly to stimulate a faltering economy.Landing the PlaneThe economy stubbornly refuses to oblige.As of the early fall of 2024,t

66、he economy is still performing remarkably well.Realgrossdomesticproduct(GDP)inthefirsthalfof 2024 grew at a healthy annualized rate of 2.4 percent,close to what many economists believe to be its long-run potential.Much of the credit goes to consumer spending,whichdefiedexpectationsofaslowdownandgrew

67、thefastest of all GDP components over the past year.The job market continues to roll as employers keep adding workers and more people enter the labor force.Unemployment remains historically low.And employment growth is still averaging a relatively robust 200,000 new jobs per month in 2024,though gen

68、erally cooling over the past year.Wall Street approves,too:The major stock market indices frequently hit new all-time highs,suggesting growingconfidenceintheeconomicoutlook.Mostnotably,theFedbelievesithasfinallytamedinflation,setting the foundation for the recent and anticipated futureratecuts.Bring

69、ingdowninflationwhilekeepingtheeconomy aloftthe proverbial“soft landing”is no easy feat.Astheheadofonedevelopmentfirmexplained,“TheFed has been trying to land a 747 on an aircraft carrier with this soft landing.and its never been done before.”Can the Fed land the plane?The latest Wall Street Journal

70、 survey of economists,conducted in July 2024,before the Feds September rate cut,forecasts real GDP growth of around 2 percent in 2025 and 2026.That growth is slower than the current rate but avoids a recession.Similarly,consumerconfidenceinvariousindicesremainsaboverecessionary levels though its har

71、dly optimistic.However,financialmarketsseemtobeabitmorepessimistic.Unlike the growth seen in the stock market indices,the yield on 10-year Treasury bonds has been falling steadily since the spring of 2024.This decline began well before the Fed started easing monetary policy,perhaps signaling expecta

72、tions of decelerating economic growth.As the head of a real estate investment bank said,“The fixed-incomemarketsaredefinitelypricingalittlebitfasterslowdown of economic activity than the equity markets.”All these points together present a decidedly mixed outlook for commercial real estate markets.In

73、 isolation,the lower interest rates will be welcomed.More transactions will be abletomoveforward,andmoreloanswillberefinanced.That means more deal activity for brokers,investors,and lenders.Thats all good.However,slower economic and job growth reduces growth in net operating income.Tenant demand may

74、 fall as job growth moderates,affecting space absorption,occupancy,and rent growth.And weakening fundamentals also constrain demand for CRE assets and limit price appreciation.This is the yin and the yang of falling interest rates.A(Somewhat)More Certain Outlook The Feds pivot on monetary policy,bey

75、ond the almost purelypsychologicalbumpofthefirstcut,bringsoneotherkeybenefit:greatercertaintyonthefuturedirectionoffinancialconditions.Manymarketparticipantshavebeenbiding their time on the sidelines,waiting for greater clarity and more affordable debt.Numerous industry leaders interviewed this summ

76、er are starting to see the signs they were looking for.According to the head of investment Emerging Trends in Real Estate 20258bankingatamajorfinancialinstitution,“Peoplenowknowwheremarketsareclearing,theyknowwherefinancingscan get done.So,youre going to see a lot more people takingassetstomarket,pe

77、oplegoingoutforrefinancing,and the markets starting to lubricate again.”Even development activity is starting to percolate.The headofmanagementconsultingforoneCREadvisoryfirmobserved,“Im very excited to see the number of people starting to investigate new opportunities.In just the last 30 days,peopl

78、e have been coming out of the woodwork.Everyone has been working hard and banging their heads against the proverbial rocks,trying to get deals to pencil and turning over and kicking pieces of dirt.”To be sure,the industry still feels a heightened level of uncertainty,whichistypicalatinflectionpoints

79、inthebusiness cycle.“The future trajectory of the economy looks as tenuous and uncertain as ever,”says one leading industry consultant.Much of the uncertainty is rooted in political issues,particularly the November election and global geopolitical risks.(See the sidebar,Issues to Watch.)Nonetheless,

80、the responses to this years survey overall revealmuchmoreconsensusonkeyfinancialmetricsand more positive outlooksthan at any point since the onset of the pandemic.Said the head of CRE economics atadataanalyticsfirm,“Theconsensusallowstherealestate industry to move forward.That doesnt mean we have st

81、rong performance,but it allows markets to clear andtransactionactivitiestopickupenoughtofindanewequilibrium without there being an apocalypse.Now we can clear the markets.Now we can get price discovery.”Emerging Trends in Real Estate 2025 9Chapter 1:The Time Has ComeA New Cycle Begins Real estate ca

82、pital markets are recovering.“Were on the early end of the healing process,but were excited about the opportunities were seeing,”said one investment banker.“Liquidity is steadily improving every day.Capitalization rates arent necessarily going back to those historic lows because growth rates arent t

83、here.But every few weeks,youre seeing more bids in the market,youre seeing pricing get a little bit tighter,youre seeing debt spreads get tighter.”That sentiment summarizes the views of many investors and analysts interviewed for this edition of Emerging Trends.The Feds new direction and clear guida

84、nce on future moves are aiding in the price discovery needed to reduce bid-ask spreads between buyers and sellers.Plus,the lower debt costs are improving deal economics for more projects.Together,these factors will encourage more investors and developers to move off the sidelines and transact,whethe

85、r tobuy,sell,lend,borrow,orrefinance.However,inmanymarkets,development still seems further off.More Lending,More DealsConditions are still challenging,if improving a bit.The regional head of a global real estate investment managementfirmnoted,“Itsstillquitedifficulttoaccesscapital markets,but there

86、is lending thats going on now that hasntbeenthereinthepast,andevenintheofficesector.”Most respondents to the Emerging Trends industry survey believe that CRE debt markets are still undersupplied for all types of activity,including acquisitions(55 percent),refinancing(58percent),andespeciallydevelopm

87、ent(75 percent).However,the trends are moving in the right direction,with more people than last year,albeit still a minority,findingthatmarketsareinbalanceandfewerfeeling that markets are undersupplied.And industry participants expect better conditions ahead,with debt availability increasing broadly

88、 among most lender sources.Those survey results track with industry statistics.The Mortgage Bankers Association(MBA)calculated that in thefirsthalfof2024,CRElendingincreasedby2percentover the same period last year.That level of growth is not a banner achievement,but its a huge improvement over the 5

89、4 percent decline registered in 2023.The MBA expects further improvement as interest rates decline,more properties transact,and more loans mature.They forecast originations will rise 26 percent for all of 2024 to$539 billion.That would be well shy of the record-shattering volumes of 2021 and 2022,wh

90、en all types ofpropertytransactionssoaredbrieflyastheeconomyreopened following the pandemic lockdown,but close to the more normal levels achieved in 2018 and 2019 before COVID transformed property market dynamics.The MBA expects lending to grow an additional 24 percent in 2025,which would mark a ful

91、l recovery back to prepandemic conditions.TheheadofCREinvestmentbankingatamajorfinancialinstitution said this:“I think youre going to see more and more normalization in debt markets.As you start to see repayments and peoples real estate exposure goes down,theyre going to want to create new real esta

92、te exposure to replace it at new levels.So I think that velocity will start tonormalize.”The equity side has a similar story,though the recovery is less complete.Sales transactions were still falling slightly at the start of 2024,though less than in prior quarters,and volumes seemed to stabilize mid

93、year.Nevertheless,Trend#2:Emerging Trends in Real Estate 202510saleswereathirdlowerinthefirsthalfof2024relativetothe same period average from 2015 to 2019,according to transaction data compiled by MSCI.Adjusting for price appreciation in the intervening years would show an even greater disparity.Tho

94、ugh the situation varies dramatically by sector,sales are down for every major property type.Even in the beloved industrial sector,the dollar value of salesinthefirsthalfof2024wasabout4percentbelowitsprepandemicaverage.Attheotherextreme,officesalesaremore than 60 percent below their prepandemic aver

95、age.Still,industry participants are optimistic that the economy is turning a corner.The head of a CRE investment bank said,“Now that people have clarity around the direction ofrates,availabilityoffinancing,costoffinancing,andeconomicclarity,wearedefinitelyseeingapipelinethatis growing each month and

96、 each quarter of transaction activity.And I think in 2025 and 2026,we get back to the 2018,2019 level of transaction activity,which would become a normalized market.”The Long Road to Price RecoveryAnother key to ramping up transaction activity will be reversing,or at least stabilizing of recent pric

97、e declines.Capitalization(cap)rates began rising when prices last peaked in mid-2022 and continued increasing until evidently plateauinginearly2024.Themostrecentfigures(asofmid-2024)suggest prices might be turning positive again,thoughthegainsmaysimplyreflectthathigher-qualityproduct is accounting f

98、or a larger share of transactions.As one leading industry analyst put it,“When you look at the value per square foot on transactions,they tend to be quite a bit above historical averages.And obviously,its not because prices are higher,which tells me not that values are up,but rather that better qual

99、ity assets are whats trading today.”Regardless of whether recent price gains are real or even sustainable,the consensus seems to be thatleaving aside downtownofficebuildingsatleastpricesarenolongerfalling,which is an important milestone.No investor wants to buy today what may be less expensive tomor

100、row,so evidence of price stability would motivate more investors to reenter the market.A prominent CRE investment banker said,“Ourviewhasbeenthatpricingtroughedinthefirsthalf of this year for many in-favor assets,and we wanted to be a buyer of that fact pattern.”The Emerging Trends survey revealed o

101、ther positive signs as well.Slightly more respondents believe cap rates will decrease in 2025 than think cap rates will stay the same;barely 10 percent expect cap rates to rise.Moreover,the buy-sell-hold barometer scored its highest“time to buy”and thelowest“sell”ratingsincetheGFC.Theseratingsreflec

102、tstrong expectations of price increases and widespread belief that now is a propitious entry point for new acquisitionsa frequent comment in our interviews.But if cap rates have indeed peaked for this cycle,prices still have a long way to go before recovering their peak Emerging Trends in Real Estat

103、e 2025 11Chapter 1:The Time Has Comeprices.According to Green Streets price index,CRE prices fell more than 20 percent since their last peak,and the coresectorsoffice,retail,multifamily,andindustrialcollectively fell even further.(Alternative sectors such as self-storage and student housing modestly

104、 outperformed the four core sectors).As of mid-2024,assets have regainedlessthanafifthoftheirlostvalue.As with transaction volumes,the pain is shared widely butnotequallyacrossthevariouspropertysectors.Officevalues,for example,are down by more than a third from theirpeakonaverage,whileapartmentsared

105、ownafifthand hotels only a tenth.And some asset types might not yethavereachedbottom.Withregardtoofficeassets,one investment manager said,“Theres still lots of people out there afraid of catching a falling knife.We need more transactionsinofficeformetosay,Okay,nowwecangoupfromhere.Ijustdontknowwhere

106、weareinofficeexactly.”Interviewees also expressed similar views about multifamily properties in some oversupplied markets.But overall,market participants feel prices are heading back in the right direction,even if the adjustment will take time.One investment banking leader said,“Cap rates have comed

107、own,sothemarketisdefinitelypricinginthissofterlanding and lower rate outlook.In the favorite asset classes,some of this is already priced in.Hopefully,it continues,and we continue to see a gradual move back upward in value.”Yet owners should not expect prices to hit prepandemic levels for some time.

108、As another investment banker said,“Cap rates arent necessarily going back to those historic lows because growth rates arent there.”Emerging Trends in Real Estate 202512Distress Still Not So DistressingOne topic that is not top of mind for industry participants is the“wall of maturities”of CRE proper

109、ties with maturing debt,estimated by Trepp to top$1.2 trillion in 2024 and 2025.This includes a large pool of assets worth less than theirdebt,particularlyinthebeleagueredofficesector.Much of that debt was rolled over from prior years in the timeless dance of“extend and pretend.”And once again,the p

110、ractice seems to be working for many lenders and owners.As prices start to recover and interest rates decline,the parties will have more opportunity to reach agreement.For now,delinquencies on structured debt,such as commercial mortgage-backed securities,remain well below levels seen after the GFC,a

111、lthough these are still early days.One debt analyst said,“Were maybe two years into value downturn,so we wont hit the peak delinquency,if history is anindicator,untilmaybefouryears,fiveyearspast.Wewillinevitably have distress within commercial real estate as we movefromaninterestrateperiodthatwasart

112、ificiallylowto an interest rate period that is much more in line with the reality of the economy.”However,thereseemstobeconfidencethatmanyofthese deals will get worked out as liquidity returns to CRE capital markets.A senior adviser to a leading investment managementfirmsaid,“Theressomuchcapitalthat

113、needsto move around in real estate.Theres a lot of queued-up selling.And then on the buy side,theres a lot of money that needs to get into real estate because the stock market has been so buoyant.”These factors and attitudes could justify the belief that the industry is,indeed,“on the cusp of the ne

114、xt upturn in the real estate cycle,”as expressed in the lead industry quote for this chapter.Emerging Trends in Real Estate 2025 13Chapter 1:The Time Has ComeBuilding Boom,Tenant Boon The pandemic triggered profound shifts in how tenants use different types of space:how much,where,and what kind.The

115、changes began with the lockdown as many sectors of the economy were forced to adapt to new ways of operating,and many of those adaptations have endured in some form.By now,these shifts have either largely played out,or their direction is reasonably foreseeable.Officeworkerscommutetotheworkplacelessf

116、requently;consumers shop more online;and more goods than ever are stored in warehouses.All these effects have altered space usage patterns.The pandemic also forced significantchangesinthetypesandlocationsofhomesthat households want to buy and rent.People want more space at home to work and prefer le

117、ss dense suburban neighborhoods,which they perceive as safer and healthier.Less heralded but perhaps even more remarkable is that overall space demand has more than recovered in most sectors.Indeed,occupied space now exceeds prepandemic levels as demand remains robust across most property types.Not

118、every sector,of course.A painful reckoning is taking placeintheofficesector,andfewexpertsexpectofficespacedemand to return to anything approaching prepandemic levels(seethediscussioninthechapter2officeoutlook).Despite the broad demand recovery,vacancy rates are rising across many property types as s

119、urging supply outpaces absorption in many markets.All this new construction is swinging the power pendulum to the tenants.Tenants are exploiting softer market conditions in different ways in different property sectors.In some sectors,tenants are simply leveraging rising vacancies to negotiate lower

120、rents.However,in other sectors,occupiers are taking advantage of the availability of a new class of higher-quality construction to upgrade their workplaces and leave behind their older,less functional space.These moves are creating a performance chasm between newer and older buildings.Haves and Have

121、-Nots in Retail ContinuesThis supply-facilitated bifurcation differs from the demand-driven bifurcation trend that preceded it.The bifurcation trend began in the retail sector over a decade ago when shoppers and retailers started to abandon redundant shopping centers in favor of the best-located and

122、 best-tenanted centers.The winners were not necessarily the newest:Frequently,older centers commanded the best locations,preventing newer entrants from gaining a foothold.But the divide between the haves and have-nots grew as e-commerce devastated outdated department storesandsuperfluousretailspace.

123、That divide between the haves and have-nots continues to this day,as different retail types are performing differently.The number of successful malls keeps falling,for example,while occupied space in necessity retailing,like grocery-anchored centers,is rising.Importantly,this bifurcation manifested

124、despite the almost complete absence of new construction.The Flight to Quality OfficeAdifferentstoryisplayingoutintheofficesector,whichwas the next property type to see a split in its fortunes.Vacancies surged during the pandemic,and the amount of occupied space continues to fall four years later des

125、piteincreasedemploymentinoffice-typeoccupations.Construction has sunk to historic lows,but much of the new supply has been superior to what was available previously.Leasing in these newer buildings has far outperformed as tenants seek out premium space that is Trend#3:Emerging Trends in Real Estate

126、202514viewed as healthier and more productive.Firms see top-quality space as an essential differentiator in attracting newworkerstotheirfirmandcurrentworkersbacktotheoffice.Meanwhile,olderbuildingsareincreasinglyregardedas obsolete,as even extensive(and expensive)renovations often are not enough to

127、compete with newer product and attract new tenants or retain existing ones.The Spread to IndustrialNow the bifurcation trend is spreading.“It started very muchinoffice,butwereseeingitinothersectorsaswell,notably industrial,”said the head of a prominent investment managementfirm.When the pandemic pro

128、mpted a dramatic surge in online shopping,theindustrialsectorfounditselfwithasignificantshortage of warehouse and third-party logistics facilities.Developers responded with record construction.Leading commercial real estate(CRE)brokerages report that more than 1 billion square feet of new product wa

129、s added in the last two years alone,far exceeding prior records.Net absorption has been positive,meaning more space is occupied than ever before.Yet demand has not kept pace with new supply,so the amount of vacant space keeps climbing.Vacancy rates are now higher than they have been in a decade.As o

130、utlined in the industrial sector discussion in chapter 2,this new vacant supply is providing tenants with the opportunity for“smart growth”and increasing the divide between newer class A and more commodity class B and C warehouses.RealestateservicesfirmCBREtalliedalmost400millionsquare feet of posit

131、ive net absorption in the 18 months from 2023 through mid-2024 among buildings delivered during the same period.At the same time,net absorption was negative for warehouses constructed between 2000 and 2022,with buildings over 25 years old suffering the worstoutflows.What do tenants want?They want mo

132、re modern features suchasaccesstopower,highenergyefficiency,andhigherclear ceilings that make the facilities more productive.In addition,warehouse occupiers are increasingly motivated by the“war for talent”and thus prioritize the kinds of wellnessamenitiesthatofficetenantsdemand,likesuperior ventila

133、tion and more direct natural light.And for many tenants,the right location is the most critical feature of all.The leader of a logistics company explained that“with next-day delivery still growing,proximity to major metro areas is becoming ever more important.”This“flighttoquality”trendisexpectedtol

134、astawhilelonger as vacancy rates keep climbing,but the favorable conditions for tenants will soon abate as the delivery pipeline slows.A Dramatic,Likely Short-Lived,Reversal for MultifamilyA different supply dynamic entirely is playing out in the multifamily sector.Like industrial,this sector has ex

135、perienced a construction explosion in the past couple years,particularly in fast-growing Sunbelt markets.The result has been rising vacancies and falling rents in the most oversupplied markets.Rents declined nationally in Emerging Trends in Real Estate 2025 15Chapter 1:The Time Has Comeeachofthefirs

136、ttwoquartersof2024bythemostsincebefore the pandemic.That scenario represents a sea change in this historically undersupplied sector and a rare triumph for tenants.But it is not likely to last for long.For one thing,construction is slowing,and the number of projects in the pipeline is falling.Explain

137、s one investment banker,“Replacement costs are generally above asset costs,so you get a discount by buying assets.”Developers will need to wait until rents again justify new construction.Despite all the new supply,there is still not nearly enough construction to keep pace with population growth,sinc

138、e many households cannot afford to purchase homes.The shortage is particularly severe at more affordable price points,as explained in the housing affordability theme later in this chapter,Many Solutions,No Answers.Thus,the oversupply seen in some markets is not viewed as severe.The head of real-asse

139、tsresearchteamforadataanalyticsfirmsaid,“Theapartment market has some softness,but I characterize it as a little bit of softness.Were still undersupplied on housing nationally.Anditsnotlikerightbeforethefinancialcrisis,when we needed a million units per year,and were delivering 2 million units per y

140、ear.Its not that kind of excess.”Data Centers and Life ScienceSupply issues are playing out very differently in two tech-focused niche sectors:data centers and life science facilities.Data centers have been the top choice of Emerging Trends survey respondents for two years running for both investmen

141、t and development prospects,far outpacing all other subsectors(see chapter 2).The reason isclear:Enormousandspiralingdemandsignificantlyexceeds the markets ability to deliver new space.The reason for the shortfall is equally apparent:Data centers have massive power requirements,and few sites are ava

142、ilable that can deliver that amount of power in a setting that can accommodate the large physical footprint of these facilities.This power requirement thus acts as a“nonrealestatedrivenconstraintonsupply,”accordingto one investment banker.“So that means therell be good fundamentals for a really,real

143、ly long time,because we cant build enough of it.”Advantage:landlords.As the global head of research and strategyforaleadinginvestmentmanagementfirmsaid,“Data centers are the superheroes now.”Thedynamicsaretheoppositefortheformerlyhigh-flyinglifescience subsector.This was a case of too much supply,to

144、o soon.Whentheofficemarketcollapsedduringthepandemic,officeownersrushedtoconverttheirexcessspaceintolifescience facilities on the theory that at least scientists must go intotheofficetocreateallthevaccinesneededtocombatthe COVID-19 virus.As often happens in the CRE sector,though,too many people had

145、this same idea.Demand is still there,but the market supplied much more space to this small niche product type than could be absorbed.Thechiefinvestmentofficerofaninvestmentmanagementfirmsaid,“Lifesciencegotwayoverbuilt,especiallyinsecondary locations,which has totally changed the fundamentals on the

146、 ground.But having said that,we do think the long-term fundamental drivers of the life science space,from the perspective of both demographics and technological advancement,do set it up to be a long-term winner.Its just got to go through a lousy patch.”Emerging Trends in Real Estate 202516The New Do

147、mestic Migration LandscapeThe United States is experiencing shifts in migration patterns.Cities like Orlando,Tampa,Austin,and Phoenix,whichpreviouslysawstronginflows,arenowexperiencingmoderating in-migration.Conversely,some unexpected areas are seeing more in-migration than expected,including Minnea

148、polis,Riverside-San Bernardino,Sacramento,Boise,Indianapolis,and Las Vegas.These shifts have the potential to reshape real estate markets across the country,creating new opportunities and challenges for developers andinvestors.Demographics Steering Real Estate Markets in 2025 and BeyondEmerging Tren

149、ds in Real Estate 2025 17Chapter 1:The Time Has ComeGrowth in“Suburban”Living,Accelerated by Work-from-Home TrendThe rise of remote work has enabled millions to move away fromtraditionalofficehubs.With35millionAmericansnow working from home at least part time,suburban and exurban areas are seeing ac

150、celerated growth.The impact is substantial:30 percent of households that moved due to remote work policies relocated to a different city,and 13 percent moved to a new state.This shift is fueling the development of mixed-use“surban”communitiesa term coined by John Burns Research and Consulting in 201

151、6.The term describes areas that blend suburban space with urban amenities.Now these areas are catering to remote workers seeking a balance between professionalflexibilityandqualityoflife.Emerging Trends in Real Estate 202518Emerging Trends in Real Estate 2025 19Chapter 1:The Time Has ComeImmigration

152、 Fueling Population Growth and Labor SupplyInternational immigration has become the primary driver of U.S.population growth,accounting for 75 percent of the increase in the 2020s,up from 45 percent in the 2010s.Given the lower birth rate in the United States,immigration is now the main growth engine

153、 of the U.S.population and its labor supply.Without immigration,the United States facespotentiallaborshortagesthatcouldstiflegrowth,reduce demand for homes and commercial spaces,and raise construction labor costs.However,with continued immigration,the U.S.working-age population is projected to expan

154、d by more than 10 million in the next decade,fueling demand for all types of real estate and helping relieve costs.Emerging Trends in Real Estate 202520Emerging Trends in Real Estate 2025 21Chapter 1:The Time Has ComeJohn Burns Research and Consulting LLCEmerging Trends in Real Estate 202522Now Wher

155、e?The pandemic rattled property markets in some fundamental ways.In the preceding trend,we highlighted some of the ways in which tenants have shifted the kinds and amount of space they demand.They have also shifted where they want to work and live,both within and among regions.The pandemic prompted

156、households and businesses to move from central cities to more outlying suburban and exurban areas.It also strengthened preexisting migration patterns from colder Northeast and Midwest metropolitan areas to warmer Sunbelt climates in the south and west.Those patterns are continuing,but the surge in S

157、unbelt and suburban migration appears to be moderating and transforming.Climate change may already be playing a role and seems poised to trigger more shifts in the years ahead.But other factors,such as housing affordability and perceived quality of life,are also playing roles.Moving Less OverallInte

158、rstate migration in the United States has been rising formanyyears,evenaslocalmovesaredeclining.Officialmigrationdatasetsonlybecomeavailableafterasignificant(two-year)lag,so the most current reliable data dates to mid-2022.However,anecdotal evidence and related data suggest that interstate moves are

159、 now falling as well.Apartment renewal rates increased sharply in 2023 and 2024relativetohistoricalaverages,accordingtofigurescompiled by RealPage.Soaring home prices are one obvious reason:Fewer renters can afford to make the move from renting to homeownership,which is a key cause of resident turno

160、ver.Another important reason is that fewer households are relocating to take new jobs.The high cost of relocationincluding the cost of a home purchaseis a factor here,too.However,also important is the increase in remote work options.While the share of job listings that allow for remote or hybrid wor

161、k has fallen from itspeak,accordingtothejobsearchfirmIndeed,theshareis still three times greater than before the pandemicand more for higher-compensated jobs like those in tech and professionalservices.Whenfirmscanrecruitfromawidergeographic area,workers need not relocate to take a job in a differen

162、t region.Of course,the opposite is also true:Workers can stay with their current job while relocating to another metro area.That trend seems to be less common,butdefinitivedataislacking.Moderating PatternsDemographic analysis by John Burns Research and Consulting reveals changing migration patterns(

163、see the sidebar,Demographics Steering Real Estate Markets in 2025 and Beyond).While broad postpandemic migration patterns continue from the Frost Belt to the Sunbelt,many metro areas that had attracted strong in-migration earlier in the decade are now seeing only moderate gains.These include Atlanta

164、,Dallas/Fort Worth,and Houston,among others.Austin and Phoenix both had strong in-migration following the pandemic,but now their net migration is barely positive.Meanwhile,some key Florida markets,including Orlando,Tampa,and Southwest Florida,are seeing outright population losses.Trend#4:Emerging Tr

165、ends in Real Estate 2025 23Chapter 1:The Time Has ComeThe rankings of some of these markets slipped this year in the Emerging Trends market ratings(chapter 3).However,most of these markets still scored very high,with all but Southwest Florida in the 15 top-rated marketssuggesting survey respondents

166、might be out of step with emerging migration trends.Similarly,industry participants also may be missing the positive impacts of international in-migration,which counters the large domestic out-migration in many large metro areas in California,including Los Angeles,Oakland,and San Francisco.These mar

167、kets have fallen out of favor in the Emerging Trends ratings.What accounts for these moderating migration patterns?The declining cost-of-living advantageespecially in housing affordabilityformerly enjoyed by many fast-growing Sunbelt metro areas.According to the research director of a real estateana

168、lyticsfirm,“Whetheritsinsuranceorjustcostofliving,that gap has closed somewhat between the Sunbelt and some coastal markets.Youre not going to see massive migrations in the next few years.”Another prominent CRE adviser noted,“More than anything,much of that housing affordability advantage is drying

169、up already.I think that the migration to the Sunbelt has already moderated.But that was expected because you couldnt keep up the path of the shock of the pandemic and all the people moving.”Other interviewees also mentioned“growing pains”in fast-growingmarketsthatdidnotinvestsufficientlyincriticalin

170、frastructure such as roads and transit.The head of CRE atanotherdataanalyticsfirmconcluded,“Someofitisjustyoure going to run out of people that are willing to move to an area like that for a variety of lifestyle reasons.”The Impact of Climate ChangeBeyond these growing pains,many experts believe cli

171、mate change is now starting to affect location decisions.Though limited now,the trend is likely to accelerate as climate impactsand their costs to property ownersrise over time.The Migration Policy Institute points out,“Human mobility linked to environmental drivers is not new,but global climate cha

172、nge is triggering more internal and international migration and displacement.”The concept of climate migration has been generally applied to impoverished regions like Somalia and Honduras,where millions of people have been displaced by drought or rising temperatures.Now it may be occurring in more d

173、eveloped nations.Evidence is growing that climate changeand the risk of further changeis affecting domestic migration patterns in the United States,discouraging households from moving to the hitherto fast-growing markets.A recent study by the San Francisco Federal Reserve Bank found migration from c

174、older Snowbelt places to hotter Sunbelt metro areas has slowedoverthepastfivedecades,notwithstandingthesurge after the pandemic.The study found that migration is slowingthemostamongagegroups2029and6069,thecohorts most likely to be making long-term location choices.Again,some of the decline in interr

175、egional migration to the Sunbelt might be explained by the waning relative affordability that had been a powerful attraction to these markets.But there seems little doubt that climate is playing a role.A Freddie Mac analysis of data from the latest Survey of Household Economics and Decision Making f

176、ound that in 2023,natural disaster concerns prompted one in seven households to investigate other places to live,including 16 percent of respondents under age 45.Clearly,climate issues are a growing consideration in location decisions.Emerging Trends in Real Estate 202524Insurance and RisksClimate m

177、igration is unlikely to reverse longstanding patterns rapidly,but change is coming,particularly as climate impacts and costs accelerate.The average number of billion-dollar climate events,as tracked by the National Oceanic and Atmospheric Administration,keeps rising,with events again projected to ne

178、ar record levels this year.Compounding the humanandfinancialtollsisthatsomuchrecentmigrationhas concentrated in relatively high-risk areas.And as Hurricane Helene painfully demonstrated in September 2024,almost nowhere is totally safe.The storm devastated communities like Asheville,North Carolina,co

179、mmonly viewed as“climate havens”relatively immune from climate risks.But if no place is truly climate-proof,some places arewithout doubtmore vulnerable than others.The 2024 R Housing and Climate Risk Report found that about 45 percent of homes nationwide are at risk from at least one type of severe

180、or extreme climaterisk,primarilyheatbutalsoincludingwind,wildfire,andflood,withmanyhomesatriskformultiplethreats.Insurance costs are soaring in many markets,while millions of properties are so vulnerable that they cannot secure private insurance at all and must rely on state-run insurance.Building i

181、n these high-risk areas also costs more to make them more resilient.Homebuyers are taking notice.Major onlinelistingserviceslikeZillowandRedfinnowprovideclimate risk data on their listings.According to Zillow,80 percent of homebuyers now consider climate risk when purchasing a home.Its not just home

182、s,of course.Many commercial properties are also vulnerable,and insurance premiums are soaring,particularly on apartments in Florida and California,but increasingly in other states and for other property types.While less direct,these risks could also help slow future migration to the Sunbelt and othe

183、r places more vulnerable to climate risks.The economist Milton Friedman famously claimed,“Only a crisisactual or perceivedproduces real change.”Recent devastatinghurricanesandwildfiresaredemonstratingthat regardless of ones politics or beliefs about the causes ofclimatechange,thecostsandrisksaretoos

184、ignificanttoignore.Emerging Trends in Real Estate 2025 25Chapter 1:The Time Has ComeHeadlinesfilledwithrecord-breakingheatfigurelargeincoverage of climate change.The opposite side of the coinextreme coldis a lesser-known hazard that is also on the rise,and it is affecting markets not previously chal

185、lenged by cold snaps.Winter storm Uri,which brought devastation to Texas in 2021,is one of the best-known examples of a cold snap hitting a warm region.Thus far the worlds costliest winter storm on record,Uri brought over$30 billion in damage,knocked out the power grid for millions of people for day

186、s,led to 246 deathsmore than Hurricane Sandy in 2012and caused water pipes to freeze and burst in many buildings.Over 500,000 insurance claimswerefiled.However,Uri was far from an isolated incident.As of early 2024,“Of the nine most recent catastrophic freeze events,eight of them occurred in Califor

187、nia,Florida,or other southern climates,mostly in areas south of the 32-degree frost line in the International Building Code,”according to Chuck Miccolis,a building resilience expert.Far from being aquietseasonbetweenhurricanesandwildfires,winterand its associated hazards“can be one of the highest-ri

188、sk seasons for businesses.”Losses from these events are not cheap,either.“Over the last decade,commercial losses from winter weather in the U.S.have averaged about$4 billion dollars per year,”says Miccolis.Why is this happening?Anne Waple,a former director at the U.S.National Climate Assessment at t

189、he National Oceanic and Atmospheric Administration,notes that“warming in the Arctic is potentially destabilizing the jet stream to the extent that we could see more incursions of extreme cold and polar vortexes.Temperatures are warmer than they used to be,and winter will be warmer overall,but we cou

190、ld still have more of those extreme cold events.”Thistrendhassignificantimplicationsforbuildingsinregions not historically accustomed to extreme cold.Rose Grant has expertise in both architecture and insurance and puts it this way:“Building codes use historical models.They say,this is the kind of sn

191、ow and these are the weights Surprising Risk of a Warming Climate:Extreme Cold Emerging Trends in Real Estate 202526weve had for the last 100 years.What were seeing with climate change is that those backward-looking models are not necessarily telling us everything we need to know moving forward as t

192、he climate is changing.”As a result,buildings designed only to code(and their occupants)in southern locales are at much higher risk of experiencing major damage,for example from collapsed roofs or burst water pipes.Energy grids in these regions are also typically not weatherized for colder temperatu

193、res and can experience major outages during cold snaps and snowstorms,putting occupants in danger.Howhastheindustryresponded?Asfirmsbegintointegrate climate risk into decision-making,extreme cold is starting to appear in risk assessments.Some developers have already implemented a robust physical ris

194、k assessmentandmanagementstrategy,includingfinancialmodeling.Onefirm,whenlookingatmarketsaroundthecountry for expansion of its workforce housing investment managementplatform,wassurprisedtofindredflagrisksfrom extreme cold in traditionally warm markets.“One of the things that jumped out to us in the

195、 analysis was that some warmer markets where we didnt expect it had significantclimateriskbothfromheatandfromcold,”accordingtoAJJackson,aleaderatthefirm.What stood out most of all,Jackson notes,was the“vulnerability of infrastructure.Coupled with the increasing frequencyofextremecoldeventsandflashfr

196、eezes,itcreated a situation where there was much more climate risk in some warm markets than we had anticipated.”After reviewing the analysis,“the upshot was that it informed how we think about whether or not were going to enter a market and if so,the types of assets that we want to acquire,and what

197、 the resilience is at the asset level to extreme cold.”At the property level,real estate developers,owners,and investors have begun to act to reduce their risks from extreme cold.For example,a large investment manager with a property in Texas saw a million dollars in damage from a cold snap in 2022.

198、Pipes burst and caused“massive disruption to property operations and overall business continuity,”with tenant amenities closed for nearly nine months.As a result,this manager chose to upgrade insulation in every building.The company mapped out and focused on the locations of exposed pipes that are v

199、ulnerable(usually in attics or facing exterior walls).These mitigation measures were relatively low-cost for a property of its sizean easy choice given the huge impact of possible recurring freeze damage.While there are no guarantees the insulation will completely prevent all future issues,it is exp

200、ected to minimize potential damage and operational impact.Other steps can include providing backup power,installing freeze protection for plumbing,and developing a business continuity plan for the property.Adapted from ULI Greenprint,Cold Snap:Extreme Cold and Real Estate Emerging Trends in Real Est

201、ate 2025 27Chapter 1:The Time Has ComeMany Solutions,No Answers When evil spirits returned to invade her familys home again,the little girl in the Poltergeist sequel famously warned,“Theyrebaaaaack!”Inasimilarlyhorrifyingway,“housing costs and availability”returned as the top social/political issue

202、in this years Emerging Trends survey,topping“political extremism”and“immigration policy”by wide margins.Housing affordability was also very much on the minds of many of the industry leaders interviewed for this report.Thus,it returns as a top trend for the 2025 edition of Emerging Trends,as it has f

203、or eight years running.Yet the national housing affordability crisiser,conditioncontinues to deepen and intensify.Here is how bad housing affordability has become:it has emerged as a prominent issueintheU.S.presidentialelectionforthefirsttimeinmemory,maybe since the end of World War II.Both major-pa

204、rty candidates are highlighting the issue in their speeches and platforms and proposing measures to improve the situation(albeit using diametrically opposed approaches).Given what was said in our industry interviews,American society does not seem willing to accept the issue to persist as just an ong

205、oing condition.While the growing attention is welcome,prospects for improvements still seem bleak,particularly in the near term.AsthechiefinvestmentofficerofamajorCREinvestmentmanagementfirmsaid,“Wehaveapronouncedhousingshortage in the United States,which is hard to imagine how its going to go away.

206、Theres only really one way to solve that problem,which is to build.But its hard to see how thats going to happen.That doesnt bode well for affordability,but it does bode well for rental housing versus ownership housing,absent all-of-a-sudden loosening of credit standards.”Worrying Trends for Homebuy

207、ing Housing affordability remains near all-time lows as home prices continue to set record highs.The average home price nationally is about 50 percent higher than at the onset of the pandemic,more than twice the increase in median worker earnings.The Wall Street Journal estimates that nearly 10 perc

208、entofhomeshaveanestimatedvalueof$1millionormore,more than double the 4 percent share recorded beforethepandemic.Notlongago,amilliondollarswasashorthandbenchmarkforluxuryhousing,butthatfigurenow represents merely an entry point in many markets.Mortgage rates are even more problematic for homebuyers.M

209、ortgage rates remain stubbornly high,even though they are beginning to edge down.Although well off their peaks registeredinthefallof2023,when30-yearfixed-ratemortgages were nearly 8 percent,rates are still some two-thirds higher than in early 2020 before the pandemic.Trend#5:Emerging Trends in Real

210、Estate 202528In an ironic and unfortunate twist,the Feds effort to bring downinflationarguablycompoundedtheproblem.First,the high interest rates brought the home resale market to a virtual standstill.Homeowners stopped putting their homes up for sale because they would lose their low-interest mortga

211、ges.Housing turnover and the available inventory both plunged,driving up prices still further for the few available homes.High interest rates also helped drive up construction costs on new units,discouraging new home production.Deliveries of single-family homes remain well below their long-term aver

212、age and well below the level needed to keep pace with household growth.The anemic pace of units started means the pipeline of new deliveries will not be increasing anytime soon.Finally,theFedgaugesinflationwithametricthatincludes an imputed homeowners cost,called owners equivalent rent(OER).For tech

213、nical reasons,OER is a lagging indicator,so the Fed relied on outdated data for an expense that homeowners do not even actually payitsimputed!Thus,manyeconomistsarguethattheFednot only exacerbated affordability but also prolonged the miserysincetheinflationgaugethatexcludesOERhadcome down to the Fed

214、s target long ago.With the expenses associated with operating a homeincluding insurance,heat,and maintenancealso rising faster than earnings,its no wonder that affordability has fallen to historic lows.Better Trends for Renters Though the U.S.homeownership rate now surpasses the level immediately pr

215、eceding the pandemic,it is still well below the rates recorded in the years before the global financialcrisis(GFC)andhasbeenfallingsincelate2022.The steep rise in the cost of purchasing a home has kept many households renting,by either choice or necessity.Rents jumped sharply in the years following

216、the pandemic as the number of renter-occupied units in the country rose far faster than population growth.Rent growth averaged almost 5 percent annually nationwide from 2019 to 2023not nearly as much as the spike in home prices,but substantially more than income growth.As noted in the supply trend(B

217、uilding Boom,Tenant Boon)and the chapter 2 multifamily overview,the apartment market dynamics are changing thanks to an unprecedented Emerging Trends in Real Estate 2025 29Chapter 1:The Time Has Comeburst of new supply coming to market.Excluding the unusual circumstances of the lockdown,rents are fa

218、lling for thefirsttimesincethehousingmarketcollapsedintheGFC.With record completions this year,rents should continue to trend down,but the gains for renters have been modest.Even with these slight declines,the U.S.Census Bureau calculates that almost half of renter households are considered“cost-bur

219、dened,”spending more than 30 percent of their income to keep a roof over their heads.Worse,an unconscionable quarter of renters pay at least half of their income on rent.Not only does this high rent burden leave little for groceries and other necessities;it effectively locks households into renting

220、permanently because they cannot save for a downpayment.Getting to Yes Asthechiefinvestmentofficerquotedaboveputit,thesimple solution to address affordability is to build more housing.A consultant to housing developers adds,“Supply and demand does work.The ability for us to add supply to housing is t

221、he single most important thing that we can do to control escalating unaffordabilitywherever that housing is added on the spectrum.Its not just adding more affordable housing,although thats important,but addinghousingperiodcreatesafiltering.”(Filteringistheprocess through which older housing stock be

222、comes more affordable as it is sold by owners who move into newer,more modern housing stock introduced into the market.)This critical insight is not new.However,years of declining affordability demonstrate that this solution is much easier said than done.Local regulations and delays remain the bigge

223、st impediments to supplying developed land to homebuilders.In response,governments,builders,and housing advocates are advancing a variety of approaches.Tweaking zoning and environmental regulations:More states and local governments are experimenting with eliminating single-family zoning,raising the

224、potential for denser neighborhoods and more affordable units.The Twin Cities of St.Paul and Minneapolis,Minnesota,provide an outstanding example of contrasting approaches to making housing more affordable.In recent years,Minneapolis adopted various measures to increase the production of higher-densi

225、ty housing,while St.Paul opted to rely on rent control.One interviewee,a CRE economist,said,“Its a great natural experiment where you get these two cities right next to each other.Minneapolis got rid of single-family zoning and allowed the market to deliver what the market wanted,at least to some de

226、gree.And rent growth was more muted during that period than in St.Paul.”Indeed,Minneapolis isenjoyingasignificantexpansioninmultifamilyprojects that are adding hundreds of new units,while housing production has slowed markedly in St.Paul.In California,where more than 95 percent of residential land i

227、s zoned exclusively for single-family homes,the state legislature enacted a bill in 2021 allowing for lot splitting.The laws future is uncertain as a judge ruled it unconstitutional early in 2024.However,Californias Assembly Bill 2011,which took effect in 2023,provides for easier and expedited appro

228、val for affordable and mixed-use housing on commercially zoned land.Many states have relaxed restrictions against Accessory Dwelling Units(ADUs)including California,Montana,Washington,and New York,among others.Sometimes called granny flats,ADUs are small residences situated on the same lot as the pr

229、imary dwelling.These units offer distinct living spaces Emerging Trends in Real Estate 202530separate from the main house,enabling homeowners to offer housing to family members or tenants.ADUs help expand housing options,thereby enhancing the availability of affordable living arrangements.Smaller ho

230、mes:Another approach to bring down costs is to make houses smaller,and that is also happening.The Census Bureau reports that the median size of single-family homes has been trending down since 2015 and now is at its lowest average since 2010,dropping 355 square feet to 2,164 square feet.The National

231、 Association of Home Builders expects the trend to continue.The association reports that over one-third of U.S.homebuilders decreased the size of the homes they built in 2023,and a quarter anticipate constructing even smaller homes this year.Still,the counter“McMansionization”trend also continues an

232、d plays a role in reducing the availability of smaller affordable homes.A study by the Metropolitan Abundance Project,for example,found that over one-third(37 percent)of new single-family homes built in Los Angeles County in 2020 were more than 3,400 square feet,and the proportion reaches two-thirds

233、 in moreaffluentcities,withbothfiguresupsignificantlyinrecent decades.The reality is that the high cost of permitting and the extended time required to secure approvals incentivize developers to build at higher price points to recover their investments.Said one developer,“Either youre building large

234、r housing for fewer and fewer people that can afford housing,or youre shrinking the sizebecause when youre building housing,its chunk price,not price per foot.And thats why townhomes are so popular.”OK,boomers:Another huge opportunity is providing options for the enormous number of baby boomers who

235、will soon need housing to age into(see the discussion in chapter 2).In many markets,seniors have few options beyond aging in place.That works for some healthy seniors,but many need housing that comes with graduated care.“The housing stock should be turning over more than it does here,”said one devel

236、oper.“We dont produce enough of it.We dont have places for people to age down into.”A National Problem Housingaffordabilityisnolongerconfinedtolargecoastalcities.Virtually every metro area in the country is suffering from a shortage of affordable for-sale and rental housing.With the problem so wides

237、pread,the issue can no longer be tackled locally but requires a national approach.Asalreadynoted,politiciansarefinallytakingnotice,andboth major-party presidential candidates are proposing policies to expand the supply and bring down costs.One wants to build 3 million new housing units by providing

238、subsidies for homebuilders and buyers.The other wants to expand production through deregulation and by making federal land available for housing construction.Both parties also want to reduce some types of housing demand to free up homes for others.The Democrats want to limit investor purchases of si

239、ngle-family homes.The Republicans want to restrict the ability of undocumented immigrants to buy or rent homes.There is no shortage of solutions,as we have outlined here and in prior editions of Emerging Trends.The answer seems to depend more on summoning the collective will to get things done.Emerg

240、ing Trends in Real Estate 2025 31Chapter 1:The Time Has ComeTheYear-End2023GlobalPropTechConfidenceIndexrevealed a measured resurgence in industry sentiment,departing from 2022s record lows.Throughout 2024,both property technology(PropTech)entrepreneurs and investors have continued to signal stabili

241、zation,in line with the cautiously active sentiment of the global macroeconomicenvironment.Investment activity in the early-and-late-stage venture capitalmarketshasbeguntopickupsignificantlyinresponse to a recalibration of pricing expectations and improvements in deal quality.According to the Global

242、 PropTechConfidenceIndex,77percentofsurveyedinvestors plan to maintain or increase their investments in PropTech over the next 12 months.And although the window for initial public offerings remains tepid for now,PropTech mergers and acquisition activity continues to be strongforbothstrategicandfinan

243、cialbuyers.Asubstantial87 percent of investors surveyed expect the volume of PropTech mergers and acquisitions to either remain steady orincreaseoverthenextyear.Beyond macroeconomic tailwinds,a combination of technology breakthroughs,evolving regulatory frameworks,and ongoing litigation will continu

244、e to reshape the PropTech landscape.This section explores three key trends driving growth and innovation in the industry heading into 2025:1.Refinement,Targeted Application,and Bottom-line Impact of Generative Artificial Intelligence in Commercial Real EstateOver the past year,the excitement surroun

245、ding the potential ofgenerativeartificialintelligence(AI)hasresultedinanover-rotation of capital and founders into the category,both chasing the trend of the moment.Following an initial rush to stake a claim in this new frontier,the landscape is now maturing,and the frenzy is beginning to temper.Eve

246、n AI-focused investors are becoming more discerning.Coinciding with this temperature shift has been the initial emergence of select generative AI applications,which are drivingthereturnoninvestment.Thefollowingfiveareas(innoparticularorder)arereceiving the most focus:The structuring and use of data

247、stored in documents throughdocumentabstraction Property marketing tools for generating listings,personalized walkthroughs,staged images,space plans,andwrittencampaigns AI chatbots that drive improved communication,tour scheduling,lead processing,and continued tenant engagementforpropertysalesandleas

248、ing The transformation of the request-for-proposal process through analysis and use of historical bid data togeneratenewdocumentation Improved market analysis and feasibility through site intelligence and automatically generated massing modelsandhigh-leveldesignschemesMany of real estates inherent c

249、haracteristicsdata-rich environment,process-intensive operations,regulatory complexity,and need for personalizationmake the industry particularly ripe for advanced AI integration.As the industry continues to evaluate and implement these applications,awareness of the tangible,bottom-line impacts is e

250、xpected to grow.2.Industry Alignment of Environmental,Social,and Governance Initiatives with Regulatory RequirementsManycorporatebudgetshavetightenedsignificantlysince2021,leading to decreased emphasis on environmental,social,and governance(ESG)or climate-related initiatives.However,even in the cont

251、ext of constrained corporate budgets,ESG initiatives can drive focused investments in carbonemissionsquantification,disclosurecompliance,andbuildingretrofits.Sectorsandregionsthatarefacingregulatory pressure have displayed continued diligence.For example,companies affected by Californias and the Sec

252、urity and Exchange Commissions climate disclosure PropTechs Impact on Real Estate Innovation and TransformationEmerging Trends in Real Estate 202532rules are actively collecting and reporting the required data.In these relevant markets,the desire to adopt existing technology solutions appears mixed.

253、While some companies are using technology to streamline their data collection,quality assurance,and reporting,others are still choosingtoprocesstheirworkflows,piecemeal,in-house.The solution space will likely continue to mature in line with the regulatory landscape.3.Heightened Focus around Resident

254、ial Real Estates Commission StructuresIn the midst of a challenging residential real estate market and a temporary oversupply in the multifamily market,the priority has been to serve and protect buyers and tenants.At the same time,consumers are demanding greater transparencyandefficiencyincommission

255、structures.Theresult could be a paradigm shift.In August,the U.S.Department of Justice announced a lawsuit against a PropTech giant,alleging that the companys revenue management algorithm enables collusion among residential landlords and property managers,driving up rents unnecessarily for millions

256、of Americans.While this case is expected to drag on for years in the legal system,its implications for the broader PropTechecosystemareexpectedtobesubstantial.Additionally,in August,new regulations concerning real estate agent behavior went into effect,following a settlement between a leading real e

257、state industry group and various class-action lawsuits related to commission structure collusion.Under the new regulations,buyers must negotiate payment with their agents before engaging in the home-showing process.Moreover,buyers agents are no longer allowed to receive compensation from the sellers

258、 agent without prior negotiation.This mandate may lead some potential buyers to forego working with an agent altogether.Inthefirstsituation,firmsinvolvedinthird-partydatasharing are likely to tighten their belts.In the second,a slew of promising new startups can be expected to develop technology to

259、streamline various aspects of the homebuying process,potentially mitigating reliance on real estate agents.Both developments are worth watching.MetaPropEmerging Trends in Real Estate 2025 33Chapter 1:The Time Has ComeIssues to Watch:Heightened Uncertainty The CRE industry is more optimistic now than

260、 a year ago,but it is not without worry.While risk is ever-present in investment markets,a heightened level of uncertainty now pervades industry outlooks.Yet,if there is broad agreement on the key risks,there is a wider variety of perspectives on how concerned we should be.Two sources of uncertainty

261、 dominated our discussions with industry leaders:the upcoming U.S.election and geopolitical risk.With wars raging in Ukraine and the Middle East,people fear that theconflictscouldspreadtoinvolvemorecountries,potentiallyeven drawing the United States into the clashes directlywith unknown but alarming

262、 consequences.People also worry about the impact on global trade and petroleum prices,which could reigniteinflationortiptheeconomyintoarecession.Then theres the federal elections that will be held in early November,a few days after this report is published.As the newly elected President Barack Obama

263、 famously told the other partys leadership,“Elections have consequences.”But not always.The ability of the incoming administration to implement policy depends partly on having a governing coalition.While the election outcome is still very much uncertain as of this writing,the consensus among most pe

264、ople we interviewed is that neither party is likely to sweep all three branches of the federal government.Thus,people expect a split government in which neither party gets all it wants.And real estate is ultimately a local business,so“politically,peoplearemorefocusedonspecificpoliciesintheircitiesan

265、dcounties and even states,and less worried about what the outcome is at the federal level,”said the head of an investment bank serving the CRE sector.Still,there is much at stake at the federal level for the CRE industry.The two competing parties have very different approaches to issues such as immi

266、gration,regulation,the environment and climate change,and monetary policy,to name just a few.A split government also raises the risk of a government after shutdown or even credit default if the parties cannotagreeonmeasurestofinancethegovernmentwhenthe continuing resolution extending the budget debt

267、 ceiling expires on January 1,2025.Then the Treasury Department wouldneedtoadoptextraordinaryfinancingmeasuresonceagain to temporarily keep the federal government open until themoneyfinallyrunsoutsometimeinmid-2025.The industry is also thinking about the Tax Cuts and Jobs Act of 2017(TCJA),which is

268、due to expire in 2025with potential tax consequences for real estate owners and investors depending on what provisions,if any,are extended.Not everyone is worried,though.One prominent developer said,“I dont think itll matter that much.A lot of the assets in place right now have a relatively high bas

269、is,so if you sell something,youdonthavearealprofitinit.Itsortofdoesntmatterwhatthetaxbenefitsare.”Ofcourse,theimpactswouldbemuchgreater for the many investors who bought years ago at a lowerbasisandhaveunrealizedconsiderableprofits.Regardless of the election outcome,the industry will just be relieve

270、d to move beyond the campaign season.An investment manager leader said,“I think the election is probably putting an extra pall of uncertainty on things and getting that in the rearview mirror will probably help a little bit.”By the time you read this,the election outcome may well have already been d

271、ecidedor not,if history repeats and the election is contested.There is even a non-zero risk that the nation will not agree on the election outcome before the next president is scheduled to be inaugurated on January 20,2025.Emerging Trends in Real Estate 20253434 Emerging Trends in Real Estate 202534

272、Emerging Trends in Real Estate 2025 35Property Type OutlookIndustryleadersaremoreconfidentthanayearago,thoughthey remain watchful for the right time for the right asset.Key to laying the groundwork for the next few years is the clarity that property markets are no longer undergoing the sudden shifts

273、 in how tenants use space as we saw during and immediately after the pandemic.Investors are now shifting their attention to cyclical issues,such as the recent excess in supply,and adapting to the developing tastes,needs,and strategies of consumers and tenants.One exception to cyclical changes is the

274、 rise of data center demand,duetothemassiveexpansionofartificialintelligencethroughout almost every facet of our economy.Other niche and alternative property types are experiencing strong growth,as well,although not in the same explosive manner.The property type ratings reported in this years Emergi

275、ng Trends survey illustrate how cyclical issues,the robustness of long-term demand,and the growing importance of data centers,along with other specialized or alternative property sectors,areinfluencingthemarket.Ononehand,theaveragerating of core property typesindustrial,single-family,multifamily,hot

276、els,retail,andofficeinEmerging Trends 2025 is up just 1.5 percent over last years average although it exceeds the average rating in the Emerging Trends survey completed in 2019,just before the pandemic,by almost 4 percent,while the gap between the highest-and lowest-rated core sectors is narrowing v

277、ery slightly,back on par with the gap in that prepandemic survey.What has changed in the individual core sectors?The industrial sector is the highest-rated core property type in this years survey,with a slightly stronger rating than last years;still,this years score is slightly lower than its pandem

278、ic peak.Both single-family and multifamily housing sectors remain strong,but ratings are slightly below last years,and they now come in at second and third place,respectively.Collectively,theseslightmovementsreflecttheinterplayoftheindustrysfocus on the longer-term strength of demand,nearer-term ant

279、icipated movement in interest rates,current oversupply in some sectors,and the understanding of tenants and consumers needs and interests.“Ourfirmismoreoptimisticbutcautious,focusingonstabilitypostpandemic.Still,the rise in niche property type demand and growth highlights the markets dynamic nature.

280、”Emerging Trends in Real Estate 202536Hotels and retail,on the other hand,although rated fourth and fifthofthecorepropertytypes,respectively,showedstrongermovement upward,with ratings this year at their highest since Emerging Trends prepandemic year.Retail,unlike other core propertytypes,hasbenefite

281、dfromthelackofconstruction.Andoffice,althoughthelowest-ratedcorepropertytype,stillprovided a surprise as the most improved in scores of all core types this year,after declines in the last few years.Still,it is among the noncore subsectors that we see even stronger movement in ratings.While the highe

282、st-rated core sector is industrial investment prospects,data centers are rated the highest among the alternative,niche,and other subsectors,with a score 13 percent above that of industrial.Additionally,this years data center rating shows a 5 percent improvement over its top rating in last years surv

283、ey.Further,three other noncore subsectors are rated slightly higher than the industrial core sectorsenior housing,neighborhood and community shopping centers,and manufacturingand ratingsofwarehouse,flex,andfulfillmentsubsectorsareaboutthe same as the overall core industrial sector,suggesting the bro

284、ad strength of that sector.Interestingly,the life sciences subsector,included in the Emerging Trends survey starting only three years ago,was initially rated higher than this years industrial core rating.Sentiment results for life sciences have since declined by 11 percent,although a further look ah

285、ead at the dynamics in this sector suggest growth is on the horizon.Withtheseobservations,wespotlightfivesignificantpropertytrends in this chapter,in addition to discussing the broader landscape of core proper ty types and alternatives.Trend 1 Industrial Smart Growth:The Next Stage of Tactical Netwo

286、rk Optimization Trend 2 Data Centers:Navigating Power Constraints and Skyrocketing Demand Trend 3 Senior Housing:Building New Muscles Trend 4 Retail Resilience:Weathering Every Storm Trend 5 Innovating the Suburbs:Is Life Sciences Growth Sustainable?Emerging Trends in Real Estate 2025 37Chapter 2:Pr

287、operty Type OutlookIndustrial Smart Growth:The Next Stage of Tactical Network Optimization Industrial real estate tenants are employing a new smart-growth strategy for the next phase of leasing,placing greater emphasis on asset selection for warehouse space when considering future expansions.Infrast

288、ructure requirements for logistics real estate have expanded to include high power availability,automation capabilities,and sustainable building features.Supplynetworkdiversification,includingthroughnearshoring and onshoring of operations,has become a key driver of location selection for industrial

289、users.Logistics real estate is entering a new phase of growth after years of volatility,one focused on smart-growth decision-making to optimize supply chains,circumvent disruption,and stand the test of time.During the pandemic,companies aggressively expanded their footprints to meet soaring consumer

290、 demand.The past two years have seen a reversal,with leasing activity slowing as the market saw aninfluxofhigh-qualitysupply.In2025,thenewphasewillmerge elements of both periods:more high-quality options for customers pursuing a strategic,deliberate approach to growth that will shape the future of t

291、he supply chain.In 2023 and 2024,companies delayed decision-making on expansion plans amid high economic uncertainty and cost challenges.As a result,new demand is expected to return in 2025 with the added layer of supply chain optimization guiding growth strategies.Companies are increasingly involvi

292、ng more stakeholders in their decision-making and reevaluating business models with a closer eye.C-suite executives and supply chain consultants have become more involved with day-to-day leasing,leading to extended deal-making timelines.According to an industrial real estate leasing expert,activity

293、will be picking up into 2025 but not as sharply as originally expected.Instead,industrial market users will continue to adopt tactical approaches to their supply network reorganization and work toward optimizing costs through the uncertain economic landscape.The result is a deliberate and tactical a

294、pproach to leasing to best increase revenues,optimize expenditures,and maximize the companys resources.Inthefirsthalfof2024,theUnitedStatesrecordedaround 80 million square feet of net absorption,a 37 percent decline from the same period in 2023.Meanwhile,according to CBRE,leasing activity nationwide

295、a leading indicator of net absorptiongrew 5 percent during the same period.This pickup of deal making is partially a response to rental rate declines in most markets that optimize opportunities for industrial tenants.Property Trend#1The industrial development cycle tells another story,one of a rebal

296、ancing to match this new demand trajectory.New construction starts continued to fall in 2024,with speculative development starts decreasing by 43 percent inthefirsthalfoftheyearcomparedtothesameperiodin2023.Additionally,a further decline of 20 percent for the entirety of 2025 is projected when compa

297、red to the peak ground-breaking volume of 2023.New supply availability is expected to rebalance in 2025 as developers adopt a more disciplined approach to development.When the expected increase in leasing activity comes into play next year,industrial users will have a broad range of high-quality,mod

298、ern facilities to choose frommainly in the expanding Sunbelt regionas smart-growth strategies continue toexpand.Supply Chain Diversification to Drive Decision-making in2025 As trade relationships continue to evolve globally,expansions of real estate footprints,to mitigate risks and move goods closer

299、 to the end consumer,will continue.This trend is apparent in developments of manufacturing facilities in markets like Mexico and India to reduce reliance on a single point of origin for inventory.In 2023,Mexico saw a 27 percent increase in foreign direct investment,and demand in Mexican border marke

300、ts remains approximately double prepandemic levels.This rapid acceleration is driven by continued nearshoring and onshoring manufacturing growth.In 2025,efforts to optimize supply chainswillemphasizeincreaseddiversification.Chinesemanufacturers continue to move operations into Mexico as border marke

301、ts in both the United States and Mexico have seen a surge in demand.However,the pace of onshoring back to the United States has been slower than anticipated,as challenges related to land availability and operational cost challenges have risen in the United States.Access to Quality Long-term Infrastr

302、ucture to Drive Leasing Behavior in Next Phase Industrial tenants are not only looking for high-quality modern assets to meet their supply chain needs.As they grapple with heightened capital constraints,they are also focusing on optimizing operating margins,capital outlay,and resource needs.Access t

303、o power and water has emerged as a key consideration in leasing needs as occupiers employ more energy-intensive features,including automation,electric vehicle capabilities,and industry-based needs for advanced Emerging Trends in Real Estate 202538Emerging Trends in Real Estate 2025 39Chapter 2:Prope

304、rty Type Outlookmanufacturing facilities and data centers.An expert in industrial customer preferences noted that power availability is the second-most crucial element in leasing decisions,right after location.In some places,such as California,Phoenix,and Nevada,power is already a barrier to move-in

305、s as users grapple with long wait times with utilities and a lack of adequate power to conduct operations.As temperatures rise in high-demand markets in the southern United States,high power temperature control and technologically advanced facilities continue to increase the power needed to fuel mod

306、ern logistics facilities.Battery and solar capabilities have continued to gain traction in key logistics markets that experience brownouts on a more frequent basis.Luckilyformosttenants,themassiveinfluxofsupplyoverthe past year means that those looking for modern building features have more high-qua

307、lity options.The demand has largely moved from built-to-suit properties to existing inventories due to the ready availability of speculative products,though certain tenants with distinct power requirementsandspecificsupplychainneedscontinueto prioritize custom buildouts.Built-to-suit absorption isfo

308、recasttofall50percentinthefirsthalfof2025asexisting high-quality inventory will satisfy current demand.A Major Differentiator for Industrial Users:Technology Industrial owners,investors,and operators investing in technology and automation are at the forefront of usingmoderntechnologytoimprovetheeffi

309、ciencyandperformance of supply chain operations.Conventional AI is extensively employed across different sectors,especially for customer support automation.For internal warehouse operations,adopters focus on optimizing pick stations and throughput rates,capitalizing on existing labor,and helpingincr

310、easeefficientoperations.Anindustrialrealestatespecialistindicatedthatthestaffingneedsforwarehouseshavesurgedsignificantlyinthepastdecade,especially within e-commerce operations.Companies are nowadoptingquick-fixsolutionssuchasautomatedwarehouse robots to transport goods throughout the facilitywhichh

311、aveprovenhighlybeneficialforbothe-commerce activities and extensive warehouse spaces.Supply chain visualization technology has also continued to gain traction,with companies turning predictive models into practical solutions for inventory management and accuracy.This strategy has helped companies be

312、tter understand where inventory is headed,where it comes from,and how best to utilize their network.Supply chain analysts are constantly monitoring these predictive models relying on this high-quality data.As companies make greater use of these technologies,data integrity is the most crucial factor

313、in accurate modeling and the decision-making associated with those predictions.Optimized warehouse and network design have become crucial,especially for larger,well-funded companies.These businesses now need advanced solutions to manage extensive inventories and complex supply chains andtooptimizeth

314、eirfinancialoverheads.Importance of Sustainability to Future Supply Chain and Long-term Strategy Industrial users are currently developing sustainability measures with a long-term perspective,assessing strategies that will unfold over several decades.Environmental initiatives,including net zero goal

315、s and regulatory measures from local and state governments have continued to drive the timeline on adoption of sustainability goals.An estimated 40 percent of industrial users have adopted net zero goals as of 2024,compared to less than 10 percent in 2019.Companies are recognizing that with a 10-to-

316、15-year industrial lease,environmental policies need to be implemented soon to meet these sustainability goals.Not all industrial users are able to adopt these measures in the current market environment;but the value of long-term investmentsfor example,in environmental,social,and governance(ESG)init

317、iativesis quicklyoutweighingtheshort-termcash-flowchallenges.Industrial Investment Improving alongside Pricing Clarity Deal volumes have stabilized in the industrial sector,albeit withfluctuations,asinvestorscometotermswiththenewcost of capital.According to a capital market expert,the number of indu

318、strial deals has remained relatively stable,showing improvement when compared to the decline observed in the previous year.In second quarter 2024,high-value areas with recently sluggish demand(such as Los Angeles)experienced the greatest percentage declines in transaction volumes.In contrast,areas w

319、ith strong market dynamics(like Dallas)witnessed the strongest increases in transaction volumes.Transaction volumes have remained consistent with prepandemic levels,indicating that a new normal has been established within the sector.Cross-border investors remain active,favoring portfolio and entity

320、deals.Investors continue to view industrial real estate as a stable long-term asset class due to stronger prospects of income growth compared with other real estate asset types,higher operating margins,and low capital expenditurerequirements.Conclusion As logistics real estate operators grapple with

321、 economic uncertainty,rising interest rates,and shifting global trade dynamics,smart-growth strategies are the story of the next phase of the industrial real estate cycle.This next stage will be shaped by the future of supply chains,with a focus on strategic growth,technological advancements,and sus

322、tainability initiatives.Emerging Trends in Real Estate 202540Emerging Trends in Real Estate 2025 41Chapter 2:Property Type OutlookData Centers:Navigating Power Constraints and Skyrocketing DemandData centers are a relatively new major property type with ties to both infrastructure and net-lease,and

323、they are on a path to be one of the largest property types in the country over the next 10 years.Demand is being fueled by numerous drivers,includingcloudstorage,mobiledatatraffic,overallinternettraffic,andartificialintelligence(AI),amongothernewandgrowing uses(e.g.,autonomous vehicles).The surge in

324、 AI isnotablydrivingasignificantincreaseintheneedfordatacenters and computing capacity.While demand for data centers is skyrocketing,new supply is facing severe constraints mainly due to limits on electric power transmission capabilities.The mismatch between constrained supply and strong demand,whic

325、h is likely topersistforthenextfiveyearsormore,hasresultedinvirtually no vacant space in the major data center markets,rapidlyrisingrents,andsuper-chargedprofitsfordevelopersthat can secure access to guaranteed power sources.There are certainly downsides to the rapid expansion of data centers.The pr

326、essing need for electricity is causing utilities to prolong the use of coal and other carbon-intense power plants.New transmission lines are needed in many cases,with public opposition a risk.Data center equipment needs to be constantly cooled,often with water that is increasingly scarce in many par

327、ts of the country.They tend to be noisy and visually unappealing,making them unsuitable as neighbors.Data center operators hope to re-open decommissioned nuclear power plants to secure long-term power,raising concerns about safety and spent fuel disposal.Further,certain counties with high concentrat

328、ions of data centers(e.g.,Loudoun County,Virginia)have begun to discuss legislation that would make new development moredifficult,potentiallyevendoingawaywithanyby-right development of land into data centers and requiring discretionary approval.All in all,the strong business case for data usage(AI i

329、s forecast to annually generate hundreds of billions in revenue)and the potential societal gains(e.g.,greater productivity,lower fatalities due to autonomous vehicles)mean that data centers will likely continue to expand as fast as power sourcescanbeprocuredforthenextfiveto10years.Data Center Typolo

330、gyThere are three primary types of data centers:Enterprise facilities are wholly built,maintained,operated,and managed by companies for the optimal operation of their own information technologyequipment.Property Trend#2 Cloud or hyper-scale facilities are built to accommodate the scalable applicatio

331、ns revolving around the cloud,big data,or distributed storage.They are typically single-tenant facilities and/or campuses.Increasingly large,hyper-scale tenants are using these facilities for AI purposes(e.g.,large language model training,inferencing).Multitenant/colocation/network-dense facilities

332、are built to accommodate multiple companies that lease space within the data center.Network-dense facilities allow users to interconnect to many different network service providers,enhancing the interconnectivity of the user to other facilities within a market and outside that market.A very limited

333、well-known group of hyper-scale tenants make up the bulk of current demand and are projecting continued and expanded capital spending.Unlike other real estate sectors,data center revenue is usually linked to power capacity(kilowatts per month)rather than the size of the building.Top MarketsData centers have historically clustered in areas with good connectivitytofiberandnearmajorpopulationcenters.