LAS VEGAS — At the September meeting of the Federal Open Market Committee (FOMC), the Federal Reserve lowered the federal funds rate by 50 basis points, which is the first easing of monetary policy in four years. This move lowered the short-term interest rate to a target range of 4.75 to 5 percent.
Elevated borrowing costs have stifled commercial real estate transaction volumes the past couple years as buyers and sellers found that values were a moving target. Now with a reduction in interest rates, many real estate professionals expect transaction volume to rebound at least moderately.
“In 2025, we expect lower interest rates will reduce borrowing costs, aid in price discovery and ultimately encourage an uptick in [commercial real estate] transactions,” said Angela Cain, global CEO of the Urban Land Institute (ULI).
Cain’s comments came in a prepared statement to summarize the findings of Emerging Trends in Real Estate 2025, an annual report jointly produced by PwC US and ULI. The report was published in conjunction with ULI’s Fall Meeting, which is taking place this week at Resort World Las Vegas.
Cain said that the real estate professionals surveyed for the report relayed that sentiment is improving, though many remain cautious.
“But we’re glad to see the early signs of capital markets poised for recovery,” said Cain.
Andrew Alperstein, a partner with PwC’s US real estate practice, predicts that the overall recovery will be “gradual” as some challenges will persist into 2025.
“Looking ahead to 2025, firms should focus on managing short-term risks and adjust their growth strategies to succeed in this reawakening,” said Alperstein.
Other top trends
A hallmark of the annual Emerging Trends report is the “Top 10 Markets to Watch,” which is a ranking of U.S. and Canadian markets based on metrics such as investment potential and development opportunities. Each market has a weighted score on a 1 to 5 scale.
As in year’s past, markets in the Sun Belt dominated the rankings due to their strong population growth and business formation. However, the report noted that sentiment is returning to select gateway markets that serve as innovation hubs and have higher barriers to entry.
This year’s top 10 markets are as follows:
1. Dallas-Fort Worth
2. Miami
3. Houston
4. Tampa-St. Petersburg
5. Nashville
6. Orlando
7. Atlanta
8. Boston
9. Salt Lake City
10. Phoenix
In addition to the market rankings, Emerging Trends tackles several topics, including the use of artificial intelligence (AI), climate change and its impact on property insurance, an expected glut of build-to-rent housing in infill markets and the domination of data center investment and development, among other trends.
This is the 46th edition of Emerging Trends in Real Estate. PwC and ULI surveyed more than 2,000 real estate specialists in the United States and Canada to formulate this year’s report. To read more, click here.
— Staff Reports