Research Reports

The U.S. consumer remains strong on the back of a healthy labor market and inflation is moving back to target, albeit slowly. Home prices continue to rise nationally despite 30-year mortgage rates being over 400 bps above levels seen four years ago. About 75% of outstanding mortgages are locked in at a rate below 5%. Demographic trends are favorable for housing because of expected strong household formation and growth in prime home buying age groups. Elevated construction costs and interest rates have caused a slowdown in the building of single-family homes and apartments. Despite a slowdown in new construction, elevated deliveries of SFR and multifamily product over the last two years is causing a near-term headwind to fundamentals for those segments. A strong consumer, positive demographic trends and supply constraints underpin the case for housing, but higher for longer interest rates pose a risk.

Looking back at 2024, many investors eagerly awaited the prospects of future rate cuts but remained cautious due to uncertainty around potential labor market weakness, softening rent growth for real estate assets located in growth markets, real estate investment managers taking on negative leverage and uncertainty around global politics and elections. In hindsight, little transaction or capital activity occurred as many investors awaited a global easing of interest rates. In 2025, ORG is anticipating an investment environment with capital markets that will become more open due to the real estate industry adjusting to interest rates that are higher than the pre-pandemic era. In this article, ORG will review the major market developments of 2024 and what investors should watch for in 2025.

In today’s evolving landscape of technological transformation, staying ahead of the curve has never been more critical, especially with the rapid advancements in artificial intelligence. The recent emergence of the Chinese company Deep Seek’s open-source AI model, R1, is disrupting industries worldwide, fundamentally reshaping how we approach data, innovation, and decision-making. Technology advancements once projected to take a decade are now materializing in half the time, with more efficient and arguably superior models becoming available to all industries, including CRE investing. Simultaneously, the real estate market faces significant headwinds, including heightened interest rate volatility and historically low transaction volumes throughout 2023 and 2024. These challenges highlight the growing need to harness new data-driven insights to drive the best use of capital. In this brief, learn how Green Cities is leveraging AI, machine learning, and advanced data models to unlock powerful market insights and drive alpha by combining cutting-edge technologies with systematic market analysis. While we believe this approach is industry leading, we also understand that this is just the beginning in how our industry can advance the underwriting and management of investments in real estate.

A report on trends shaping commercial real estate markets. This comprehensive update from our real estate investment team delves into key themes including: Commercial real estate valuations are at their bottom; what can we expect in 2025? Outlook for private and public real estate equity and debt. Key themes and structural trends impacting real estate. Property sectors we believe provide the greatest opportunities over the next 12 months, and those that warrant caution.

CLOUD COMPUTING AND GENERATIVE AI ARE SUPERCHARGING DEMAND The boom in cloud services and the surge of Generative AI have set data centers on an upward trajectory. In 2024, U.S. data center absorption is on pace for over 7,300 MW, a 29% increase in total U.S. inventory. SUPPLY STRUGGLES AGAINST POWER BOTTLENECKS The race to meet this demand is not simple. Power infrastructure is lagging, land that fits data center requirements is scarce, and the supply chain is strained, illustrated by record-low national vacancy rates of just 1.7% in Q3 2024. GOVERNMENT AND PRIVATE SECTOR TACKLING ENERGY GAPS While Washington and local utilities roll out grid modernization plans, the tech giants are getting creative, with moves towards nuclear energy investments signaling a bold shift in tackling energy constraints. ADAPTABILITY AND ALIGNMENT Strategic collaboration with hyperscalers through tailored designs and powered shells has emerged as a key approach to addressing the growing supply demand imbalance in the cloud and AI landscape. This adaptability strengthens tenant relationships and positions facilities to be future-ready for evolving technologies.

In the final quarter of 2024, the REIT market met continued uncertainty stemming from geopolitical risks and inflation expectations with cap rate expansion. Most notably, the industrial sector experienced the most dramatic change. Due largely to a mismatch in supply and demand, deteriorating fundamentals in the sector have led to investor wariness. The vacancy rate increased while rent growth flatlined, with more supply expected to hit the market in 2025, potentially further exacerbating uncertainty in the sector. Our Q4 2024 REIT Cap Rate Perspective Full Report offers more detailed insight into these sectors, as well as our perspective across the REIT market.

We have a year of change ahead, with many questions to consider, but have managed to narrow them down to our Top 10 for 2025. The key topics include analyzing Donald Trump’s plans as he returns to the White House, with tariffs expected, and the potential impact on the real estate market. We also discuss where the real estate market is in the cycle and its rebound potential. Next, we revisit the topic of Artificial Intelligence (AI), analyzing the pressure it’s putting on scarce electricity supplies and the resulting shift to nuclear power by BigTech. In addition, we discuss the slowdown in sentiment towards ESG, residential rent controls and how professional sports and real estate can interact for success or failure.

This outlook explores key trends that will influence real estate occupier and investor attitudes over the coming year. Titled Divergent Paths at an Inflection Point, this publication comes at what we see as a unique period for global real estate markets. After what has been a challenging few years for performance, there are strong reasons to believe that liquidity will improve and that a fine vintage for returns is in the making. The story, however, is complicated by geopolitics and structural challenges. But therein lies the opportunity.

Volatile and uncertain real estate markets have become familiar over the last few years amidst evolving capital markets and monetary policy, especially in relation to the cost and availability of debt capital. As we look forward to 2025, many of our base case assumptions remain consistent with the views we shared last year, but we anticipate broader acceptance of the market environment is likely to catalyze the beginning of a new real estate market cycle driven by: 1) A new era of interest rates – a “higher for longer” interest rate environment for the long end of the yield curve, regardless of the impact of monetary policy on the short end of the yield curve, and 2) survival of the fittest – the upcoming wall of debt maturities will finally unveil troubled real estate capital structures and generate opportunities for disciplined investors. While this piece examines this macroeconomic environment, the rest of our 2025 outlook series will dive further into the niche real estate strategies we believe are likely to provide the most attractive risk-adjusted returns for real estate investors in the coming year across global listed REITs, non-core private equity, and enhanced income debt, as we look for sunny skies in the middle of a cloudy backdrop.

Real estate values are past the trough, and we believe 2025 will mark the start of a new cycle. Multiple indicators, including the inflation-adjusted price trend, suggest that assets are currently undervalued. Early movers into the new real estate cycle will likely outperform. Historical data show these opportunities typically last 7-14 quarters after the cycle turns. Trophy office properties appear positioned to present among the best opportunities in 2025, as high-quality assets are currently mispriced. By 2026, top office assets may be as “in favor” as residential and industrial assets. The retail sector is also poised for a rebound, with vacancy at 30-year lows and virtually no new supply in the pipeline.