Despite ongoing challenges, such as rising energy costs, office vacancies, and economic uncertainty, commercial real estate (CRE) investors remain optimistic about the opportunities 2025 may bring. According to a TD Bank survey, industry professionals expect declining property values to spur renewed investment in the sector this year. The survey, which gathered insights from more than 200 CRE professionals, found that 76% believe dropping commercial property values will drive increased investment in 2025.
Falling Interest Rates Seen as Key to Market Recovery
While commercial real estate faces a changing economic and regulatory environment, investors remain focused on interest rate movements as the most significant market driver. According to the survey:
- 52% of CRE investors believe that potential interest rate cuts will have the biggest impact on the sector in 2025.
- Only 14% expect that the new presidential administration’s policies and regulations will be the primary factor influencing commercial real estate.
The industry is also divided on how rising housing material prices will affect new developments. While 70% of respondents anticipate an increase in material costs, only 32% believe it will significantly impact investment decisions.
Return-to-Office Trends Fuel Confidence in CRE Investment
Investor confidence appears to be linked to return-to-office (RTO) mandates, which are reshaping commercial space demand. The survey found that:
- 68% of CRE professionals predict that RTO requirements will be the biggest business decision impacting commercial real estate in 2025.
- At the same time, many investors acknowledge that traditional office space demand will not return to pre-pandemic levels. Instead, they expect mixed-use properties to dominate the market, with 68% of respondents forecasting that these developments will gain the most traction this year.
“We’re experiencing a very modest recovery in parts of the office market, but that doesn’t mean the industry should be quick to revert to its old ways,” said Hugh Allen, Head of U.S. Commercial Real Estate at TD Bank. “Investors and commercial real estate owners are taking these changing expectations into account when they invest in their next project. This includes amenities like in-office gyms, extended break rooms, and cafeterias—organizations want to create a sense of place for their employees, enhancing their return-to-work experience.”
Uncertainty Over Housing Costs and Investment Decisions
While most CRE professionals anticipate higher housing material prices in 2025, they remain divided on how this will influence investment strategies:
- 38% expect continued investment in the sector, despite rising costs.
- 32% believe higher material costs will impact new developments, potentially slowing growth.
Many investors are also adjusting to what they see as a “new normal” in interest rates, with expectations that navigating inflation and rate fluctuations will be critical to timing acquisitions and development projects.
“The commercial real estate sector will face new challenges in 2025, and a new administration will bring wild cards to the market, but this analysis shows that the right investors are prepared to face those challenges head on,” Allen said. “Navigating the uncertainties regarding inflation and interest rates will be key to getting the timing right for investors to pull the trigger on acquisitions and developments.”
Technology and Sustainability in CRE Investment
Beyond property investments, CRE professionals are prioritizing technology and sustainability initiatives as key trends in 2025. According to the survey:
- 60% of respondents believe that predictive analytics will have the biggest technological impact on CRE.
- 32% see smart buildings as the next major innovation, while 28% highlight sustainability and efficiency advancements as growing priorities.
- 55% of industry professionals predict that smart buildings and other tech-driven sustainability efforts will be the most impactful trend this year.
“Technology will drive commercial real estate into its next era,” said Allen. “The advancements in artificial intelligence and overall upgrades to how we use innovation in CRE will continue to bear positive outcomes for the investors who use them properly.”
However, there is uncertainty about how government policies on environmental protections will shape sustainability initiatives in CRE. 30% of respondents cited government regulations on environmental standards as the most significant sustainability trend in 2025, highlighting the potential for regulatory changes to influence long-term investment strategies.
Looking Ahead: Optimism in a Shifting CRE Market
Despite continued market fluctuations, commercial real estate investors remain optimistic about opportunities in 2025. Falling property values, return-to-office trends, and advancements in technology and sustainability are all expected to play a role in shaping the sector’s future.
While economic challenges persist, the survey suggests that investors are adjusting their strategies and preparing to capitalize on market shifts, with interest rates and mixed-use property developments being key factors to watch in the months ahead.
Click here for more on TD Bank’s examination of the commercial real estate market.
