As we look ahead to 2025, there are clear signs that the commercial real estate landscape is poised for transformation. A number of positive macroeconomic developments, including a downward shift in interest rates, have set the stage for increased refinancing and new investment activity in 2025.
Caliber CEO Chris Loeffler recently discussed what he expects will be some of the most important issues to watch in commercial real estate in the year ahead.
Commercial Real Estate (CRE) will turn a corner
“The commercial real estate sector is turning the corner, and we expect it to generate positive returns in 2025,” Loeffler said. “Asset prices are now hovering at the bottom, providing cash-rich investors with an opportune entry point to get into those assets. Based on the market data we’re seeing, we also expect CRE assets to generate stronger operating results in the coming years, making this an investor’s market.”
Indeed, the Deloitte annual commercial real estate outlook for 2025 shows that 88% of market participants expect CRE revenues to increase in 2025, rebounding from two years of expected declines. Furthermore, valuation declines slowed in 2024, which may stimulate a new round of distressed transactions as banks and owners seek to clean up their balance sheets by disposing of challenged assets.
A new administration signals new capital for Qualified Opportunity Funds (QOFs)
The Tax Cuts and Jobs Act of 2017 created the opportunity zone tax incentive as a means of spurring economic growth and job creation in low-income communities by offering investors the ability to reduce or eliminate short and long-term capital gains tax liabilities by investing in a QOF. An estimated $80 billion-plus has already flowed into QOFs to date. Set to expire in 2026, several members of Congress have already expressed interest in “broadening and extending” the law, which is spurring new interest in this investment opportunity. “With the new administration and Republican Congress coming into office in January, I believe the Qualified Opportunity Zone Fund program will be extended, and there will be a new surge of capital into these unique investment vehicles that are designed to reward investment in underserved communities,” Loeffler predicts.
Hospitality assets are poised for growth
“The Hospitality and Lodging asset class is poised to be a break-out investment opportunity in the CRE sector in the next few years,” Loeffler explained. “Given supply constraints and the lack of new building, hospitality assets that have now surpassed pre-Covid demand levels are very well positioned for growth amid increasing consumer demand.”
Hospitality and Lodging ranked in the top 5 of CRE asset classes that presented the greatest opportunity for real estate owners/investors over the next 12 to18 months, according to Deloitte’s 2025 CRE Outlook. Additionally, over the past three decades, most public hotel companies were formed in the years immediately following a major market disruption. The combination of the pandemic impact and a surge in interest rates has created a catalyst for new entrants into this market.
Tech will be a gamechanger
“Technology will play a crucial role in shaping the future of real estate, particularly in how properties are built and managed,” Loeffler expects.
The industry continues to address the aging of talented trade workers and has seen a resurgence of interest in trade schools. Newly trained tradespeople will be more knowledgeable in how to use certain technologies to enhance both the quality and efficiency of their work. In addition, advanced manufacturing techniques have revolutionized the process of building housing structures in a factory, enabling developers to deliver homes and apartments at a lower cost and on a faster timeline. ZenniHome is a great example of this, making its mark on the $2T U.S. housing market with its sustainable, factory-built modular homes.
The New Year will bring exciting opportunities for innovation, growth, and transformation in the commercial real estate sector as savvy industry players capitalize on shifting market dynamics and evolving consumer demands. Investors are already making moves to capture these opportunities. The year ahead promises to be a time of renewed confidence and bold moves in the industry, where challenges give way to progress and potential.
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About Caliber (CaliberCos Inc.) (NASDAQ: CWD)
With more than $2.9 billion of managed assets, including estimated costs to complete assets under development, Caliber’s 15-year track record of managing and developing real estate is built on a singular goal: make money in all market conditions. Our growth is fueled by our performance and our competitive advantage: we invest in projects, strategies, and geographies that global real estate institutions do not. Integral to our competitive advantage is our in-house shared services group, which offers Caliber greater control over our real estate and visibility to future investment opportunities. There are multiple ways to participate in Caliber’s success: invest in Nasdaq-listed CaliberCos Inc. and/or invest directly in our Private Funds.
Investor Considerations
The information contained herein is general in nature and is not intended, and should not be construed, as accounting, financial, investment, legal, or tax advice, or opinion, in each instance provided by Caliber or any of its affiliates, agents, or representatives. The reader is cautioned that this material may not be applicable to, or suitable for, the reader’s specific circumstances, desires, needs, and requires consideration of all applicable facts and circumstances. The reader understands and acknowledges that, prior to taking any action relating to this material, the reader (i) has been encouraged to rely upon the advice of the reader’s accounting, financial, investment, legal, and tax advisers with respect to the accounting, financial, investment, legal, tax, and other considerations relating to this material, (ii) is not relying upon Caliber or any of its affiliates, agents, employees, managers, members, or representatives for accounting, financial, investment, legal, tax, or business advice, and (iii) has sought independent accounting, financial, investment, legal, tax, and business advice relating to this material. Caliber, and each of its affiliates, agents, employees, managers, members, and representatives assumes no obligation to inform the reader of any change in the law or other factors that could affect the information contained herein.
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