This story is part of a series of 2025 outlooks from PNC Corporate and Institutional Banking.

Although uncertainty continues to impact the commercial real estate industry, there are signs of positive momentum within some sectors going into 2025.

“There is a real opportunity for 2025 to be the start of a return to normal activity in the commercial real estate marketplace,” said Dan Mullinger, head of PNC Real Estate. “There are projects in the pipeline that developers put on hold when interest rates were on the rise in 2022 and 2023, and they are now ready to revisit those, which could lead to a potential uptick in real estate development. We’re also seeing signs that businesses are focused on deploying capital over the next few months.”

A rebound is far from a sure thing, however, as uncertainty persists surrounding future policy agendas with a changing administration and an evolving economic backdrop. “There are still a lot of unknowns, including any potential impacts that may play out as a result of the presidential and congressional elections,” Mullinger said. “Uncertainty around long-term interest rates is another factor, which can affect financing and may lead to developers deciding to push decisions out for another year and wait for a better environment.”

But even though some aspects of the outlook remain murky, according to Mullinger there are some areas poised for positive performance in the coming months:

  • Multifamily housing: Demand for multifamily housing has increased in the last few months and is meeting supply in many markets. While certain markets may be experiencing some softness in demand for newly constructed properties, renewal rates are good for existing properties. With a handful of exceptions, overall markets are seeing record absorption against record supply.
  • Commercial Mortgage-Backed Securities (CMBS): CMBS origination activity has continued to tick up in the second half of 2024 and will likely continue to do so in 2025. Although the Federal Reserve has begun to cut interest rates, long term rates have increased and continued volatility will continue to challenge borrowers and lenders.

Other sectors of commercial real estate remain largely in wait-and-see mode, as the business environment continues to evolve. Office space is one clear example. Even as more companies return to the office, the actual impact on the demand for office real estate is still unclear.

One area that will remain an important focus for PNC Real Estate, even with challenges that may result from an uncertain environment, is affordable housing. “The availability of affordable housing continues to be a major issue in the United States. In half of the largest metros, a family earning the local median income can’t afford a starter home,1” Mullinger said. “PNC is committed to working with developers, investors, and local organizations to do what we can to alleviate the shortage.”

1 Redfin August 29, 2024

 

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