Real Estate Economic Outlook for 2025: Back to the Future

At a glance

• The main takeaway: The real estate market is poised for significant shifts in 2025, particularly in the areas of technology, productivity, and new deals.
• Impact on your business: Knowing what lies ahead can help you plan effectively. Below, we have provided a helpful summary of key economic takeaways and trends to be mindful of as you prepare your real estate business to grow in the year ahead.
• Next steps: For further insights and more personalized advice tailored to your real estate business, we encourage you to connect with Aprio’s Real Estate Team.

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The full story:

As we step into 2025, it helps to look back at economic performance and trends in years past to inform our approach to the future.

In our most recent webinar — aptly titled “Back to the Future” — Simeon Wallis, Chief Investment Officer of Aprio Wealth Management, brought a blend of historical insights and forward-looking strategies to his presentation, which was designed to help real estate investors, business owners, and stakeholders navigate the evolving landscape. 

Below, we have provided a helpful summary of key economic takeaways and trends to be mindful of as you prepare your real estate business for growth in the year ahead.

Economic overview for real estate in 2025

Economic and market projections are especially crucial for the real estate sector, which relies on strong economic fundamentals and healthy capital flows to function. The good news is thatthe overall economic outlook for 2025 is positive, with expectations of robust growth in both the economy and capital markets.

As we move forward and look at specific economic growth drivers, we can learn valuable lessons from reflecting on historical events, particularly societal or geopolitical parallels to what we are experiencing currently. On the heels of the November presidential election and with a new administration inaugurated, we can expect there to be significant policy changes ahead. Previous eras — such as the dramatic shifts in the economy post-World War I and market transformations of the early 1980s — can serve as a bellwether for future planning and preparation.

There are three drivers that could spur economic growth and development for real estate businesses, investors, and stakeholders in 2025:

1. Agility Amid Transition: Going forward, real estate stakeholders, investors, and leaders will need to navigate an environment characterized by volatile inflation, shifting supply chains, and fluctuating labor markets. The new administration’s policies and potential law changes will also play a role in shaping these dynamics.
2. Productivity Unleashed: Technological advancements — particularly in artificial intelligence (AI), automation, and robotics — are expected to drive significant productivity enhancements in the real estate sector. This projection is just one part of a larger, continuing trend, in which new technologies will accelerate developments and growth across a variety of sectors outside of just real estate.
3. Deal Boom: In the first half of 2025, we expect to see a surge in deal activity, starting with private equity and extending to real estate transactions in the latter half of the year. We expect the boom to be fueled by improved economic conditions and a more favorable regulatory environment.

Real estate market insights

Different sub-sectors of the real estate market will experience economic growth in different ways. Here is a breakdown of what the commercial, multifamily, retail, and industrial sub-sectors may see over the next 11 months:

• Commercial Real Estate: Broadly, the commercial real estate sector, excluding office spaces, will likely see a recovery in 2025. Economic fundamentals that drive demand remain strong, and the market may benefit from improved financial conditions and a healthier economic outlook going forward.
• Multifamily Market: Multifamily units are poised for growth, driven by evolving demographic trends and low home affordability. Declining permits signal tighter future supply, which could lead to rent growth by late 2025 or early 2026, particularly in undersupplied regions like the Midwest and Northeast U.S. Markets that experience significant supply growth in the years following the start of the pandemic may lag in the start of their rebound.
• Retail Real Estate: From an economic perspective, the retail sub-sector will likely benefit from limited supply growth, a trend we have seen continue since the global financial crisis. Many major retailers (such as grocery-anchored centers and necessity-driven retail chains) have adopted an omnichannel approach to maintain strong growth amid limited supply, especially in suburban markets.
• Industrial and Warehousing: In 2025, we expect e-commerce to drive continued demand for logistics hubs and industrial warehouses. Although vacancy rates have increased, the long-term trends remain positive and future construction will likely decline, leading to a more balanced supply-demand dynamic.

Consumer behavior and real estate market dynamics

In 2025, we expect to see two consumer-driven factors play a role in fostering growth across the real estate sector: segmentation and migration.

The consumer market is bifurcated into “stretched consumers” and “secure consumers.” In general, stretched consumers are younger renters with higher debt levels who may face financial strain in making real estate decisions. Conversely, secure consumers are typically homeowners with appreciating assets, who will continue to spend and grow their wealth. We expect to see this dynamic continue into 2025 and play a role in growing the real estate sector.

Furthermore, population migration from high- to low-cost states is boosting local real estate demand in the receiving regions. For the most part, this trend is driven by retirees, corporate relocations, and students seeking more favorable living conditions and business climates.

Challenges and considerations for real estate

Aside from the observations we summarized above, what should real estate stakeholders, investors, and businesses watch for over the course of the year? Here are three key focuses:

1. Regulatory Environment: The regulatory landscape is expected to become more favorable for real estate stakeholders in 2025, reversing the trend of increased regulations that we have seen in recent years. This shift could spur economic growth and positively impact the real estate market as a whole.
2. Interest Rates and Inflation: In 2025, expect interest rates to remain elevated with only modest rate cuts. Inflation (particularly in the Core Services sector of the market) remains a concern for most real estate stakeholders and will influence their borrowing costs and investment decisions going forward. We caution against assuming a significant decline in cap rates.
3. Labor Market and Immigration Policies: The new administration is expected to make major immigration policy changes, which could have sweeping implications for sectors that tangentially affect real estate, such as construction and manufacturing.

Putting this together, we expect these considerations to maintain or increase replacement costs, supporting the value of existing assets.

Of course, we don’t have a crystal ball that can predict exactly what will happen in the economy and markets — but having a strong understanding of key trends and projections can help you plan effectively. By staying agile, leveraging productivity enhancements, and capitalizing on the anticipated deal boom, real estate businesses, investors and stakeholders can position themselves for success in this dynamic environment.

For further insights and more personalized advice tailored to your real estate business, we encourage you to schedule a consultation with Aprio’s Real Estate Team. We are here to help you navigate potential economic changes and achieve your business goals.

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