CRE Investor Sentiment on the Upswing
Despite challenges such as rising energy costs, office vacancies, higher interest rates, and broader economic uncertainties, commercial real estate (CRE) leaders are expressing optimism about the opportunities in 2025.
Insights from TD Bank’s survey at the CRE Finance Council Miami showcase a relatively positive outlook from over 200 CRE professionals. A key takeaway from the survey is that 76% of respondents believe that falling commercial property values will drive increased investment in the CRE sector this year.
The survey provides valuable insights on sentiment surrounding CRE, and the factors influencing investment decisions. Interest rate movements are a major driver, with 52% of investors believing that future interest rate movements, specifically the potential for lowering rates, will have the most significant impact on the sector. However, only 14% of respondents believe that changing policies and regulations under the new administration will have the biggest impact on their business.
The rising confidence among CRE professionals heading into 2025, as revealed by TD Bank’s survey, highlights a shift in expectations regarding the future of the office market and the evolving demand for mixed-use spaces.
Most (68%) of industry professionals predict that return-to-office mandates will have the biggest impact on the CRE market this year. While many employees may continue with hybrid or remote work arrangements, the push for physical office attendance could influence office space leasing and tenant requirements. Despite the emphasis on return-to-office, there’s a clear trend towards mixed-use properties as the future of CRE, with 68% of professionals predicting that these properties will gain significant traction in 2025.
“We’re experiencing a very modest recovery in parts of the office market, but that doesn’t mean the industry should be quick to revert to its old ways,” said Hugh Allen, head of U.S. commercial real estate at TD Bank. “The office segment will continue to face challenges as a whole. As employees return to in-person work, they crave unique, meaningful workplace experiences that make coming into the office a positive experience.”
“Investors and commercial real estate owners are taking these changing expectations into account when they invest in their next project. This includes amenities like in-office gyms, extended break rooms, and cafeterias – organizations want to create a sense of place for their employees, enhancing their return-to-work experience,” he added.
The survey results reveal a nuanced outlook on housing material prices and their impact on the CRE market in 2025, alongside a growing consensus about the interest rate environment being here to stay.
Most CRE professionals (70%) expect housing material prices to rise in 2025. This reflects the ongoing pressure on construction costs, driven by supply chain disruptions, labor shortages, and inflationary pressures. However, investors are split on how rising material costs will affect the market, with 38% anticipating continued investment while 32% forecast an impact on new developments. Meanwhile, many investors have now concluded that the current interest rate environment—with rates being higher than in recent years—is likely the “new normal.”
“The commercial real estate sector will face new challenges in 2025, and a new administration will bring wild cards to the market, but this analysis shows that the right investors are prepared to face those challenges head on,” said Allen. “Navigating the uncertainties regarding inflation and interest rates will be key to getting the timing right for investors to pull the trigger on acquisitions and developments.”
Along with properties, CRE professionals have their eyes on tech investment this year, especially predictive analytics. Three-fifths (60%) of industry professionals expect predictive analytics to have the biggest technological impact on CRE in 2025. This is followed by smart buildings (32%) and efficiency and sustainability advancements (28%), in-line with green initiatives in recent years.
There is also a growing focus on technology investment this year. Among the technological advancements expected to shape the market in 2025, predictive analytics is seen as the most influential. A significant 60% of CRE professionals expect predictive analytics to have the biggest technological impact on the sector, followed by smart buildings (32%).
Continuing the trend of green initiatives, 28% of CRE professionals foresee significant advancements in efficiency and sustainability impacting the market. Despite the rising emphasis on technology and smart buildings, 30% of CRE professionals see government environmental protections as the most significant sustainability trend in 2025.
