Top commercial real estate trends for 2025

Let's zero in on commercial real estate. So far this year, real estate up just 12%, far underperforming the S&P 500. There's a new report out from PwC, breaking down the top five emerging trends in the commercial real estate sector for next year. It could potentially be poised for a comeback. Joining us now with a little bit more insight, we want to bring in Andrew Alperstein. He is a PwC partner, a partner at PwC. Andrew, it's great to have you here on Yahoo Finance. I think when people think about commercial real estate, there is some hesitation still just about the weakness that we could see within the sector, specifically surrounding office, which I know is just a small subsector within commercial real estate. But I'm curious, why should we or should investors be a little bit more optimistic heading into the new year? Yeah, look, we were really pleased as we published this year's publication. And as a reminder, Emerging Trends in Real Estate is a forward-looking publication. We were really excited about the change in sentiment that we received from the folks that we surveyed and those that we interviewed. And really, it's a recognition that with the Fed signaling lower interest rates and making some reductions to interest rates, we've hopefully got, you know, a much more bullish 2025. There's obviously a lot of capital that has been raised and is ready to be deployed. And so, you know, a lot of the fundamentals underlying most property types are still very strong. You also note, though, that you should be careful what you wish for as one of your trends for 2025. Are interest rates coming down an absolute positive for CRE? Well, they almost always are. You know, as I mentioned before, with the fundamentals as strong as they are, there is a lot of optimism around a number of property types and that is really fueling a lot of the optimism for commercial real estate. Keep in mind, we've had two very slow years from a transaction activity perspective. And a lot of that was because of the lack of certainty around interest rates and around capitalization rates that inform a lot of how real estate trades and transacts. You know, Andrew, there's two themes that we've been talking about a lot when it comes to commercial real estate when you take a look at the bright spots. One's the ongoing demand for warehouses and then two, obviously, is data centers. When you talk about the rise of AI adoption, how big of a catalyst do you see that being overall for the sector? Yeah, no doubt. Data centers, and we highlight this in the publication, data centers have become really the talk of the town. A lot of tailwinds and positive momentum around data centers particularly with the gen AI focus that we're seeing in so many facets of the economy. And so we're expecting really strong continued rent growth in the data center space. The biggest challenge we really have in the data center space is around new supply and the challenges in getting new data centers developed and the limited power connectivity, the limited opportunities really for developers to build as quickly as they need to. Andrew, for investors that are looking to gain exposure to this space, I think a big question is just the reach, right, what reach they should be looking for, what exactly that checklist should look like. Those that are best set up here, in your view, for 2025, what should that exposure then look like? Well, as you look at a couple of things, number one is we talk a lot in the publication about migration trends and how so many of the Sunbelt markets have been particularly successful and expected to continue to do so given the migration growth, job growth, economic growth in those markets. You overlay those demographic shifts with some of the property type stories and trends that we highlight in the publication and you look at onshoring in the manufacturing space within industrial, you look at some of the affordability concerns that we have in housing and rental housing particularly. There's a really interesting overlay between some of those migration and demographic and geographic trends along with some of the property type trends that really start to tell a story around particular investments. All right, Andrew, we gotta leave it there. Thank you so much for joining us this morning. We appreciate it.