At this year’s Cohen Client Conference, we provided attendees with an update on the U.S. real estate market, which is impactful to the investment industry’s focus on portfolio diversification, tax efficiency and long-term value creation. From cool downs to comebacks to strategic shifts, the highlights below capture the key takeaways and emerging themes that will help investors and stakeholders position themselves for what’s next in real estate.
The U.S. real estate market in 2025 is navigating a complex but promising landscape. It is defined by resilience and recalibration. After years of volatility driven by the pandemic, inflation and rising interest rates, the industry is entering a new cycle marked by cautious optimism, strategic repositioning and evolving investor priorities.
While not without its challenges, the sector is adapting to new economic realities and investor expectations. From the rebounding office market to the booming data center sector, opportunities abound for those who can navigate the shifting landscape with agility and insight.
The real estate landscape in 2025 continues to evolve, shaped by shifting consumer behavior, demographic trends and technological demands.
The broader U.S. economy is showing signs of resilience, with growth supported by consumer spending, easing financial conditions and productivity gains. This economic backdrop is helping to stabilize real estate fundamentals across most sectors, even as challenges like elevated interest rates and inflation persist.
Office Sector Begins a Slow Comeback
After years of uncertainty, the office market is showing early signs of recovery. Leasing activity is improving, particularly in prime downtown locations, where shortages of high-quality space are beginning to emerge. The “flight to quality” trend continues, with tenants prioritizing modern, amenity-rich buildings that support hybrid work models.
The office space sector is still under pressure, though signs of stabilization are emerging as more employees return to in-person work on a regular basis. However, the question remains: will underutilized office buildings be repurposed? A proposed bill offering a 20% tax credit for converting office space into residential units could be a game-changer, encouraging adaptive reuse in urban centers.
Retail Real Estate: A Quiet Winner
Retail real estate continues to feel the impact of e-commerce, with giants like Amazon reshaping consumer habits. Despite this, grocery-anchored retail centers are thriving, driven by consistent foot traffic and competition for prime locations.
Retail is entering 2025 with the lowest vacancy rate among all commercial real estate sectors. While some consolidation continues, demand is growing in suburban areas and Sun Belt cities. Institutional capital is returning to retail, drawn by its stability and evolving consumer behavior.
Multifamily Housing: Demand Stays Strong
Despite a surge in new apartment completions over the past two years, multifamily vacancy rates are expected to decline in 2025. High homeownership costs continue to push many households toward renting, especially in urban and high-growth regions. Economic growth is also supporting new household formation, further boosting demand.
The multifamily residential sector is experiencing robust demand, particularly in Sun Belt cities where population growth remains strong. Rising costs of being a homeowner and lifestyle preferences are pushing more people toward renting, fueling the need for well-located, high-quality apartment units.
The U.S. housing market in general remains sluggish, with home price growth projected at just 3% for 2025. High mortgage rates — expected to hover around 6% to 7% — are suppressing demand, while inventory levels, though improving, remain below historical norms. Builders are slowing new construction, particularly in the multifamily segment, due to tighter rental economics and financing constraints.
Data Centers and Infrastructure: Powering the Digital Economy
Driven by the rise of AI, cloud computing and the digital economy, data centers are experiencing explosive growth. Power demand is straining the grid, but development continues, with nuclear energy beginning to play a more prominent role in supporting this expansion. This has prompted a parallel rise in infrastructure funds focused on energy investments. These funds are capitalizing on the need for reliable power in cities where data center development is concentrated.
Industrial Real Estate: Cooling After a Hot Streak
The industrial sector, a pandemic-era standout, is normalizing. Leasing activity is returning to pre-COVID levels, and vacancies are rising in older properties. Demand for warehouse space is softening, and the market is gradually returning to pre-pandemic levels. However, demand remains strong for modern logistics facilities, especially those near major population centers. The market remains tenant-favorable but is expected to tighten later in the year.
Across the board, investors are exploring positive leverage opportunities by using debt strategically to enhance equity returns. The potential for office-to-residential conversions, combined with targeted tax incentives, could reshape urban real estate in the coming years.
Contact Asha Shettigar or a member of your service team to discuss this topic further.
Thank you to our panelists for participating in this session with us: Adam Hill, Partner in Charge, Advisory, and Market Leader, Real Estate & Construction, Cohen & Co; Vincent Polce, Senior Vice President, CBRE
In this blog Cohen & Co is not rendering legal, accounting, investment, tax or other professional advice. Rather, the information contained in this blog is for general informational purposes only. Any decisions or actions based on the general information contained in this blog should be made or taken only after a detailed review of the specific facts, circumstances and current law with your professional advisers.