PwC, ULI: Real Estate Confidence Increasing
(Illustration courtesy of PwC, ULI)
Real estate industry leaders are more confident now than a year ago, but they remain cautious, according to Emerging Trends in Real Estate 2025, published by PwC and the Urban Land Institute.
“Stability has returned to property markets, and investors are now addressing cyclical issues like oversupply and adapting to changing consumer and tenant preferences,” the report said.
ULI Global CEO Angela Cain noted she expects lower interest rates in 2025, which will reduce borrowing costs, aid in price discovery and encourage an uptick in commercial real estate transactions. “Sentiment is improving, although largely still erring on the side of caution, but we’re glad to see the early signs of capital markets poised for recovery, as firms look to longer-term strong fundamentals and adjust their strategy by market and property type,” she said. “In this respect, a number of alternative sub-sectors are increasingly of more interest, although the need for housing and logistics continue to make these core sectors attractive.”
Andrew Alperstein, a partner with PwC’s US real estate practice, added that challenges persist across the real estate sector, but found signs of improvement after years of hardship. “Industry optimism has grown in the last year, though there is an understanding that recovery will be gradual,” he said. “Looking ahead to 2025, firms should focus on managing short-term risks and adjust their growth strategies to succeed in this reawakening.”
Other emerging trends cited in the report include:
Multifamily may see supply a glut in high-growth areas. Next year’s multifamily market will be shaped by a wave of apartment deliveries peaking in 2024 and concerns about a supply glut in high-growth markets, especially in the Sunbelt. “However, industry specialists anticipate that demand will remain strong due to job growth, favorable demographics and immigration,” the report said. “Rent growth has slowed in high-supply markets but remains positive in regions with limited new construction. An increasing number of renters are cost-burdened, underscoring the need for more market-rate and affordable housing through new policies and streamlined development.”
Higher insurance costs due to growing climate change risks are affecting both commercial real estate and housing markets. Climate change is increasing risks such as flooding, cold snaps and wildfires. “Climate risks are increasingly influencing homebuyers, investors, lenders and others’ decisions alongside affordability and quality of life,” the report said. “Nearly half of homes nationwide are at risk from at least one type of severe climate event, making insurance harder to obtain. In response, real estate firms are incorporating climate risk into their decision-making and risk assessments.”
Data centers dominate. Fueled by “surging” demand, data centers are seeing increasing interest from tenants and investors. “This demand is driving rapid growth, particularly as AI significantly increases the need for computing capacity,” the report said. “However, new supply faces constraints, creating a persistent mismatch between demand and available space. As a result, major data center markets have virtually no vacant space, leading to rising rents and substantial profits for developers able to secure reliable power sources. The supply-demand imbalance is expected to continue for at least the next five years, positioning data centers as a critical asset class in real estate.”
