As we head into 2025, the real estate industry is facing significant challenges, with global elections, rising financing costs, and the looming pressure of debt maturities topping the list of concerns, according to the Counselors of Real Estate’s (CRE) annual “Top Ten Issues” report. The industry is grappling with unprecedented uncertainty, most notably due to an estimated $2.5 trillion in commercial loan debt set to mature by 2026. This looming debt burden is forcing a reevaluation of property valuations and financing models.
“Whether the Fed cuts rates four times or five, they’re not going back to zero,” said Anthony DellaPelle, CRE’s 2024 global chair, during a recent conference. “You won’t see mortgages under 3% for a long time unless something drastic happens, and I hope that’s not the case.”
Another challenge is the rising cost of property insurance, as insurance companies continue to hike premiums in response to the increasing risk of extreme weather events and property damage. This trend is directly impacting property values and making transactions more difficult across all sectors.
Office vacancies, in particular, are becoming a major issue, with ripple effects beyond just the commercial real estate sector. DellaPelle pointed to a recent sale of a $32 million assessed office building, which went for just $8.5 million—an example of the value reset happening across many markets. These devaluations pose a threat to local tax revenues and may result in municipalities shifting tax burdens onto residential property owners.
The housing market is also facing its own set of challenges. High interest rates and limited inventory are putting pressure on affordability. Many older homeowners are opting to stay in their current homes rather than buy smaller, more expensive properties with higher mortgage rates. “Why would I sell my house and buy a smaller one with a 7% mortgage that’s going to end up costing me more than my current home?” DellaPelle explained.
Sustainability concerns are also growing in importance, driven by stricter regulations and changing consumer preferences. Property owners are under increasing pressure to understand and reduce their carbon footprints, while younger buyers are placing greater emphasis on climate resilience when making purchasing decisions.
On the geopolitical front, global conflicts and political shifts can disrupt supply chains, increase construction costs, and alter investment patterns. The CRE report notes that international tensions often drive foreign capital into U.S. real estate markets, as investors seek safer investment options in times of global uncertainty.
Navigating this complex landscape requires a keen understanding of demographic shifts and population movements. “You have to anticipate where people are going,” DellaPelle advised. In this challenging environment, those who can accurately predict and respond to these trends will be best positioned for success.
