Politics, housing affordability and AI are among the most pressing issues facing residential and commercial real estate in 2025, according to the Counselors of Real Estate (CRE).
The CRE, a group of more than 1,000 advisors around the globe, recently presented its annual top 10 list of those topics. They are:
Global and U.S. elections. “Elections are front and center in the U.S. and globally with major elections across more than 70 countries that could shake up an already volatile geopolitical landscape. For real estate, the big issue is the uncertainty these elections create and how that uncertainty layers into real estate performance and decisions,” the report said.
Cost of financing. The expectations of a series of interest rate cuts in 2024 have not materialized, and it’s impossible to predict what exactly will happen in 2025. “Barring an unforeseen shock, the era of free money that has existed since 2009 is over. Considering the long run for cheap capital, that is proving to be a tough adjustment. We have a whole generation of people who weren’t in the market before 2009, and their expectations were formed in an environment where central banks around the world were injecting liquidity into the system,” CRE reported. “On a positive note, the sharp drop in transaction volume that occurred last year shows some signs of stabilizing.”
Loan maturities & debt repricing. “At some point, the ability to push maturities out is going to hit a wall. If, or more likely, when it does, lenders are going to be facing a higher volume of loans that will be more challenging to clear,” CRE’s report said. “The banks hold a significant proportion of that debt and have limited flexibility in what they can do about it because of regulatory oversight. Banks are not going to be able to continue to extend loans without sufficient capital reserves behind it.”
Geopolitics & regional wars. The war in Ukraine and how it evolves is mentioned in multiple spots in the CRE report. “The geopolitical landscape is a complicated web that sends ripple effects into real estate markets through factors including supply chain disruption, inflation, immigration, labor, housing affordability, climate, and monetary policy. Such factors in turn impact costs, supply and demand for real estate, expectations for risk-adjusted returns, and, ultimately, how real estate is priced,” the report said.
Insurance costs. “Soaring insurance costs over the past few years have created a steady stream of anecdotes of double- and even triple-digit premium increases,” the report said. “Owners are reeling from a perfect storm of converging forces that include inflationary pressure on construction costs, updates on insured property values, and a push from insurers to recoup losses from a flurry of extreme weather events. Last year was another record-breaking year of damaging global natural disasters with $380 billion in economic losses – only 31% of which were covered by insurance, according to Aon’s 2024 Climate and Catastrophe Insight Report.”
Housing affordability & attainability. “The lack of affordable housing has been a persistent problem that appears to be getting worse, not better. Although multifamily rent growth stabilized and has even turned negative within some metros over the last year, rents have generally climbed steadily higher over the past 15 years. Nationally, average multifamily rents are estimated to have increased by 45% for the 2009-2023 period, according to Fannie Mae,” CRE said. Solutions are not easy, and the problem may get worse before it gets better, the report said, calling on “low-income housing tax credits, local subsidies and zoning to support the creation and preservation of affordable housing.”
Artificial intelligence. Accuracy and timeliness are the keys to effect AI in real estate, although there are some hurdles still to climb. “Real estate professionals understand that assets differ, but they cannot be moved. An office building in Omaha is not the same as an office building in New York City. Currently, the algorithm doesn’t fully understand this concept because the algorithm doesn’t live anywhere. It doesn’t understand the value of a Main & Main location. It can be taught that, but only through human intervention,” the report noted.
Sustainability. Extreme weather events and a shifting regulatory environment has pushed sustainability into the top 10 of real estate concerns, the CRE said. “Hurricanes, tornadoes, flooding and wildfires are increasing in frequency and severity. The U.S. National Oceanic and Atmospheric Administration (NOAA) confirmed that 2023 was Earth’s hottest year on record, with an unprecedented 28 disasters in the U.S. that exceeded $1 billion in damages,” the report said. “Property owners are continuing to feel growing pressure from both internal and external sources to better understand their carbon footprints and engage in decarbonization. Part of that pressure stems from growth in sustainable investments and sustainable finance, as well as a push for greater corporate accountability.”
Office vacancies, the tax base & and the health of urban cores. The work-from-home phenomenon has created big questions for urban centers with few obvious solutions. “The office sector faces big questions that will continue to play out over the next five years. What’s going to happen to these empty buildings? What’s going to happen to the debt on these buildings? What’s going to happen to the cities that have diminished tax revenue?” the report said. “All of these big cities need more affordable housing, but converting office space into housing is not an easy thing. It’s expensive, it’s time-consuming. Sometimes it doesn’t make sense, and the more practical solution is to demolish the office rather than converting the existing structure to a new use. The successful cities will reinvent themselves, and we’re starting to see that in New York. The areas of the economy that need help, such as residential, healthcare, and education, are emerging as users for parts of these commercial buildings.”
Price expectations gap. This is mostly a commercial real estate issue in which buyers are holding on to assets with outsized expectations of their value, while sellers are waiting for distressed properties to move at bargain pricing. The result is a standoff between buyers and sellers and a stagnant commercial property market.