As the Chinese proverb makes reference to, we are living in interesting times. In this edition or our newsletter, we will address the salient trends we see impacting commercial real estate in 2025.
While there is much uncertainty in the macro economy and financial markets at present, one thing we are confident about is that 2025 will be anything but dull. Turbulent times, such as these, provide both upside opportunities in commercial real estate, as well pitfalls to avoid. Here are some of the trends we anticipate:
- We expect tariffs on imports and manufacturing reshoring to continue to tighten local Industrial/Warehouse markets. Based on recent historical data from CoStar*, the Industrial vacancies are 7.9% in Denver Metro (excluding Boulder) and 10.6% in Boulder County.
- The reduction in federal regulations and tax cuts, we expect to fuel both tech startups and merger/acquisition activity, tightening the vacancy rate for Flex Space. CoStar data reports a Flex Space vacancy at 13.7% in Denver and 7.5% in Boulder.
- Notwithstanding the return to office policies of some corporations and government agencies, we expect the office leasing market to remain soft, continuing as a tenant’s market. Technology to accelerate the trend of companies to do more with fewer employees. Further, many technology workers have grown accustomed to working remotely, and are resistant to returning to a traditional office setting. CoStar reports recent vacancies of 17.2% in Denver and $13.3% in Boulder County.
- Interests rates have a very significant impact on the purchase market for all sectors commercial real estate. Despite financial markets pricing in two quarter point rate cuts, we expect both residential and commercial mortgage rates to move little. That is because the Fed through adjust the Fed Funds rate controls only the short end of the yield curve. We expect mortgage rate to remain higher because of baked-in inflations expectations
Changes in the macro economy present opportunities in our local commercial property to markets.