Research Reports

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.

Prologis Research tapped into decades of industry experience, proprietary data, and unique property and customer insights to predict seven supply chain trends for 2025.

To identify climate risks and determine mitigation strategies, investors and asset managers can use climate-modeling software tools for both asset- and portfolio-level analyses. While software tools are effective for screening baseline physical risks, a deeper analysis of property-specific characteristics and community-level resilience efforts are necessary to fully assess the material physical risks posed by climate change. In this paper, we will explore ways to mitigate the shortfalls in software tools.

Appetite for real estate investments is continuing to rise, given most global markets have reached a turning point, with capital values largely stabilised and some having begun their recovery phase. As we enter a new cycle, we believe lower entry prices, coupled with strengthening rental growth, make for attractive return potential.We see ripe conditions for investors to leverage structural sector tailwinds, underpinned by supply constraints and increasing demand. However, as we expect the market recovery to be uneven, backing the right asset in the right place is likely to be the key to outperformance. Heightened uncertainty around the degree and duration of interest rate cuts, following the outcome of the US election, could also mean investors need to rely more heavily on investments that offer greater scope for rental growth to meet return requirements. Supported by asset repricing, we believe repositioning weaker assets early on in the cycle could be an effective route, with the potential to generate additional value as the recovery strengthens. With increased optimism moving into 2025, we believe it is an opportune time to take advantage of real estate markets’ upswing, tapping into the most attractive performance prospects the asset class has seen in many years.

Investing in hotels allows investors to benefit from traditional real estate attributes such as current income, asset appreciation, and portfolio diversification. Hotels also have additional levers to generate alpha, including superior asset and operations management. Further, investing in hotels provides investors with the opportunity to capitalize on the continued growth of travel, which will be positively influenced by demographic trends, particularly due to the depth and breadth of the Baby Boomer and Millennial generations, business travel recovery, and advancements in technology and innovation.

Middle-income rental housing is fundamentally the best investment opportunity in multifamily today. A combination of favorable demographics and the ever-increasing need for affordable homes is improving demand fundamentals. At the same time the luxury supply wave has crested, which will create a window of opportunity for investment in this subsector in the coming years. In this paper, we will define the subsector, its fundamentals, benefits and risks, and show investors how an allocation to middle-income rental housing can help generate higher and more stable returns from their multifamily portfolio, while also addressing a critical societal need to preserve affordable housing.

In 2025, the macro backdrop for private infrastructure is undoubtedly positive. Economic growth is resilient, inflation remains above average, and interest rates are declining. Valuations have also fallen in recent years, offering relative value compared to public markets. All stars appear aligned for the asset class, but here is a simple truth – there is no easy money left in infrastructure. Technological disruptions, crowded trades, and valuations are key investor debates across all asset classes. Private infrastructure is not immune. Secular trends such as the 4Ds (decarbonization, digitalization, deglobalization, and demographic change) have opened up new investment opportunities, but sentiment may have become unbalanced. At a high level, it’s hard to argue that infrastructure is crowded. Private infrastructure is only 4% of institutional investors’ portfolios, and historically delivered stable risk-adjusted returns. However, it’s difficult to dispute that there is some hype in sectors such as renewables and digital infrastructure. On the other hand, traditional infrastructure such as utilities, transportation, and waste appears overlooked. In our 7th annual infrastructure outlook, we try to navigate the increasingly complicated investment landscape. We discuss where opportunities lie, and how to think about underwriting assumptions to avoid crowded trades and value traps. On the recent US elections, we argue that investors are underestimating political risks, although strong electricity demand and the unintended consequences of policy changes will be important mitigants. Finally, we discuss why 2025 offers a window of opportunity for infrastructure debt with the looming maturity wall.