What to Expect from the Investment Real Estate Market of 2025
With 2025 now here, it’s crucial for investors to have a well-defined plan or, at minimum, a clear understanding of market expectations. In today’s data-rich environment, strategic planning is more essential than ever. Leveraging insights from Marcus & Millichap, investors can gain a comprehensive outlook on what to anticipate in 2025 and position themselves to capitalize on emerging opportunities in the investment real estate market.
What to Expect in 2025
Demographics and Property Types: The U.S. boasts highly favorable demographics, with an adult population exceeding 70 million. Each age group is driving demand across different property types, shaping the real estate landscape. Baby Boomers are spurring demand for medical office spaces and senior housing, while Millennials and Gen Z are driving growth in both rental and owner-occupied housing markets. Meanwhile, all age groups collectively contribute to the demand for retail and industrial spaces, highlighting the diverse opportunities within the investment real estate sector.
Decline of New Construction: The development of new properties is projected to decline across all property types heading into 2025. This downturn is expected to persist for several years, with ripple effects likely extending for more than five years. The factors that are expected to slow new development projects are a declining workforce and the cost of construction. The construction labor market is losing workers at a rate faster than it can replace them, a trend expected to worsen in the coming years as experienced professionals are retiring, while the pool of qualified replacements continues to shrink. Rising costs in construction are due to new loans with interest rates exceeding 8% and the rising cost of essential construction materials.
Capital Flows Into Investment Real Estate: Since 2014, the flow of capital into investment real estate has seen consistent annual growth, surpassing previous records year after year. This trend is fueled by increased access to data, professional property management, enhanced lending liquidity, and the rise of broad-based syndication platforms, all of which have made real estate a more attractive and lucrative investment option. Additionally, the ongoing generational wealth transfer—estimated at $84 trillion—could further boost capital inflows into the investment real estate market as younger generations inherit and reallocate assets.
What it Means for Investors
With this information, investors should craft a strategic plan for 2025. However, this plan must remain flexible to adapt to shifting market dynamics and prepare for unforeseen challenges. While the future is uncertain, it’s no excuse for inaction. Waiting to see what unfolds is not a viable strategy. Instead, investors must focus on formulating a clear plan, executing it with precision, and staying agile to pivot as market conditions evolve.
The Azucena Take provides an inside look into the investment real estate market using the research done by Marcus & Millichap.