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CompStak recently hosted a webinar featuring CEO and Co-Founder Michael Mandel and Senior Director of Real Estate Intelligence Alie Baumann, where they reflected on the major commercial real estate (CRE) trends of 2024 and identified five key trends to watch in 2025. Here’s a breakdown of the discussion and what CRE professionals should keep an eye on in the coming year.
Key Themes of 2024
- Interest Rates Declined but Future Cuts Uncertain
- Labor Market Cooled Slightly but Remains Solid
- Election Year is Over but Policy Changes and Impact Still in Flux
- Office Leasing Still Depressed from Pre-COVID and Industrial
- Correcting to Pre-COVID Averages
- CRE Capital Markets Activity Down Second Straight Year but 2025 Could Trend Up
So, what is CompStak thinking about 2025?
1. Rents and Activity will Rise for
Class A-/B+ Office Space
After a turbulent few years, the office market saw signs of stabilization in 2024, though a full recovery remains elusive. Leasing activity improved slightly in key markets, but high vacancy rates persist, particularly in older office buildings. The demand for high-quality, amenity-rich spaces remains strong, but supply is dwindling in many markets and tenants may be looking elsewhere in the market for space. In recent quarters in 2024, rents for Class A-minus and B-plus transactions have been rising, suggesting that leasing activity may increase beyond the trophy and new construction space that has dominated the past few years.
2. Industrial Markets with Oversupply
Lag, While Others Stabilize
The industrial sector, which had been on an explosive growth trajectory, began to show signs of cooling in 2024. While demand for logistics and warehousing remains healthy, rising interest rates and increasing construction costs have tempered new developments. Markets with strong port access and last-mile delivery hubs continue to perform well. In 2025, CompStak expects the industrial sector to be a tale of two markets. Markets with limited recent new supply, such as Houston, may see continued rent growth, while those experiencing substantial new deliveries will likely trend in the opposite direction.
3. TAMI is Back, FIRE (and Law) Are
Out For the Office Sector
In 2025, CompStak is predicting that TAMI (Technology, Advertising, Media, and Information) companies will be back in the market and account for a rising share of leasing activity after several years of their relative absence. In 2026 and 2027, the share of lease expirations in the TAMI sector increases, suggesting that these tenants are making space decisions in 2025 and may be influenced to adopt stronger RTO office policies than in previous years, especially among Big Tech companies. This shift is likely driven by calls from DOGE to return all federal workers to the office, along with broader industry trends. Additionally, AI firms are entering the market and taking space, further amplifying TAMI’s influence. Meanwhile, FIRE (Finance, Insurance, and Real Estate) and law firms which have been the dominant players in the office market may take more of a backseat. While the market as a whole is stabilizing above pre-pandemic levels, it’s still down from its peak.
4. Small-Bay, Multi-Tenant Industrial
Outpaces Bulk Industrial
In the industrial sector, buildings of 200,000 square feet or smaller are experiencing the lowest vacancy rates, with smaller spaces, particularly those under 100,000 square feet, proving to be the most competitive. CompStak expects to see small-bay industrial rent growth and interest to well outpace bulk industrial in 2025. Demand for these smaller spaces is outpacing supply in major markets. Notably, deals for spaces under 100,000 square feet and those in the 150-200K square foot building size range saw year-over-year rent growth. Additionally, multi-tenant buildings under 200K square feet outperformed their larger counterparts, with smaller multi-tenant properties also surpassing single-tenant properties in performance throughout 2024.
5. Data Centers Will Be the Hot
Niche Sector
Data centers are poised to be a hot niche CRE sector for 2025, with demand drivers reaching an all-time high. Following major institutional acquisitions in 2024, data centers are expected to stand out as a key growth area in 2025. These acquisitions signal strong investor confidence and a growing recognition of the sector’s crucial role in the digital economy, further fueling its expansion in the coming years.
What This Means for 2025
While the commercial real estate industry faces uncertainties, opportunities remain for those who adapt to shifting market conditions. Key takeaways for CRE professionals:
- Office landlords should focus on high-quality, amenity-rich spaces to attract tenants.
- Industrial investors should be mindful of slowing demand and rising costs but explore opportunities in smaller properties and strategies for multi-tenant properties.
- Interest rate fluctuations and other factors impacting the economy like tariffs and federal policy will continue to impact investment strategies.
Stay tuned for more insights from CompStak as we continue to track market trends and provide data-driven analysis for CRE professionals.
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