Zoned In Briefing

U.S. Real Estate Market Overview – June 2025

Market Conditions: The U.S. real estate landscape has shifted markedly in mid-2025, with rising supply and tempered demand tilting many markets toward buyers. National housing inventory has climbed to its highest level in five years, up ~16.7% year-over-year as of April. Sellers now outnumber buyers by roughly 34% nationwide – an unprecedented imbalance in records since 2013. There are about 1.9 million active home sellers versus 1.5 million buyers, meaning nearly 500,000 more sellers than buyers in the market. Homes are taking longer to sell (median ~40 days on market, 5 days longer than a year ago) as inventory piles up. Notably, condos in urban cores have a glut – 83% more condo listings than buyers – while the single-family home market has a smaller 28% surplus of sellers.

This flood of listings and fewer buyers has finally cooled off price appreciation. The median U.S. home sale price in April rose only 1.6% year-on-year, the slowest growth in two years, and many homes are now selling below asking price. Elevated mortgage rates near 6.7% have pushed monthly payments to record highs, restraining what buyers can afford. Taken together, these conditions mark a stark reversal from the frenzied seller’s market of recent years – today’s housing market is far more “buyer-friendly,” with ample inventory and moderating prices.

Factors Influencing the Market: High borrowing costs and economic uncertainty are the chief brakes on demand. The Federal Reserve’s aggressive rate hikes have left its benchmark rate at ~4.25–4.5%, and 30-year mortgage rates hovering around 6.9%. This has more than doubled mortgage costs from pandemic lows, pricing many buyers out. “It’s expensive to buy a home: High home prices and mortgage rates are scaring buyers off,” notes Redfin’s housing team. Inflation remains above target (around mid-3% range), keeping the Fed in a holding pattern; Fed Chair Jerome Powell signaled in June that no rate cuts are likely before Q3 2025 given still-elevated inflation and a strong labor market.

Meanwhile, job growth has shown signs of slowing by May, and consumer sentiment is cautious amid recession fears and geopolitical tensions, further dampening homebuyer confidence. Policy moves are also in play: a recent federal tax-cut and spending package swelled the debt and lifted Treasury yields, keeping long-term borrowing costs high. Additionally, new tariffs on construction materials introduced by the Trump administration have raised building costs, hindering new housing supply and feeding into higher home prices.

On the flip side, some pandemic-era effects are gradually easing. The “mortgage rate lock-in” effect – owners staying put because they have ultra-low rates – is weakening as life events force moves and people adjust to the new normal of 6–7% rates. Indeed, more homeowners with locked sub-3% loans are deciding to sell despite higher rates, adding to inventory. In summary, real estate activity in 2025 is being pulled by two opposing currents: rising economic headwinds and financing costs that suppress demand, versus an increasing need (or willingness) to sell by owners, which boosts supply.

Regional Differences: Market conditions vary widely across U.S. regions, creating pockets of opportunity and stress. The Sun Belt and West Coast have swung firmly to buyer’s markets, after a pandemic-era boom in those areas led to overbuilding. Florida in particular illustrates this reversal. Six of the top 10 buyer’s markets are in Florida, with Miami leading the nation – sellers in Miami now outnumber buyers nearly 3 to 1. After a flood of transplants drove Florida housing costs up, surging construction (Florida built more new homes than any state except Texas) has created a glut.

Jacksonville’s median home price is down 3.4% year-over-year – the sharpest drop nationwide – and Austin, TX isn’t far behind with a 3.0% decline. Many formerly hot Sun Belt metros (Phoenix, Tampa, Orlando) have seen prices flatten or dip slightly as inventory hit record highs and buyers gained leverage. These markets are also contending with local challenges: Florida’s intensifying hurricanes have sent insurance costs soaring and pushed some residents to leave, and steeply rising HOA fees are prompting condo owners to sell.

By contrast, parts of the Northeast and Midwest remain seller’s markets with scarce supply. In Newark, NJ – currently the strongest seller’s market – there are 47% fewer sellers than buyers, driving the median price up 12.2% in the past year. Other tight markets include Nassau County on Long Island, Providence, RI, and Baltimore, where buyer demand still outpaces listings. These regions did not see the same building frenzy as the Sun Belt, and their housing stock remains limited, keeping upward pressure on prices.

In between are “balanced” markets (roughly even buyer and seller numbers) in cities like St. Louis, Chicago, Boston, and Kansas City. Typically, balance is being achieved through different combos of supply and demand: for instance, Chicago’s demand is weak (like the national trend) but inventory is also low, yielding balance, whereas Cincinnati enjoys above-average buyer demand coupled with rising listings, netting a similar equilibrium.

Investors are finding divergent landscapes: in high-growth Sun Belt areas that are now cooling, there may be bargains emerging (e.g. discounts in Austin or Phoenix), but also risks of further price correction and high carrying costs (like Florida’s insurance woes). In tighter markets of the Northeast/Midwest, investors face stiff competition and high prices, but also the promise of resilient values. Notably, rental demand remains robust in affordable Midwest cities, an attractive point for income-focused investors.

The bottom line is a more fractured real estate map – booming migration havens of 2020–21 are now dealing with excess supply, while some historically slow-growth markets are seeing stable or rising prices due to chronic undersupply.

Data-Backed Predictions: Looking ahead, most experts anticipate a continued softening but not a crash. Real estate analytics from Redfin and Zillow point to modest price declines on the national level in the coming quarter. Redfin forecasts U.S. home prices will end 2025 about 1% lower than a year prior, given the huge imbalance of sellers to buyers now on the market. Zillow’s June outlook similarly predicts a 1.4% drop in home values in 2025, attributing it to swelling inventory and cautious buyers.

With buyers firmly in the driver’s seat in many cities, negotiating power will likely pressure prices slightly downward through Q3. However, any price declines are expected to be gradual. One reason is that not all markets are falling – as noted, parts of the East Coast are still seeing mid-single-digit price growth. Those gains could partly offset dips elsewhere when looking at national averages.

Another reason is that mortgage rates, while high, may be near their peak. Many economists expect the Fed to begin easing rates by late 2025, which would relieve some affordability strain (though Fed officials have signaled no cuts before the end of Q3). If rate relief comes, buyer demand could pick up again, putting a floor under prices.

Indeed, a Reuters poll of property analysts in June projected home prices would rise ~3.5% annually in coming years – a historically slow pace, but not a freefall. These analysts cite expectations of gradually declining mortgage rates as a catalyst for a sustained but gentle recovery.

In the very near term (next quarter or two), inventory and days-on-market should keep rising, especially over the summer, giving remaining buyers more choices. Sales volumes may improve slightly as pent-up demand takes advantage of better deals – Zillow revised up its home sales forecast to 4.14 million for 2025 (still historically low, but a 1.9% increase from 2024). Rental markets are also forecast to stay cool: Zillow expects single-family rents to grow only ~2.8% this year, a muted pace reflecting higher vacancy from recent construction.

Overall, the consensus is that the housing market is undergoing a needed “reset” rather than a rout. Prices ran up far faster than incomes in 2020–2022, so this plateau or slight dip is bringing valuations closer in line with fundamentals. Barring a sharp recession, housing analysts do not foresee a severe crash – lending standards have been solid and mortgage delinquencies, while inching up, remain far below crisis levels.

Instead, expect the next quarter to bring a continuing shift toward normalization: more inventory, longer sales cycles, flatter prices, and an environment where buyers and investors can be choosier. As one economist put it, “the market has adjusted” to a new balance, and sellers are slowly coming to accept it. That adjustment sets the stage for a healthier, more sustainable real estate market going into late 2025.

Sources: National Association of Realtors; Redfin housing data and analysis; Zillow Research; Reuters Economics; HousingWire/Fed updates; U.S. Bureau of Labor Statistics; CRE Daily market briefs.

Zoning Shifts and Impacts: A wave of zoning reforms is sweeping across key U.S. jurisdictions in 2025, aiming to address housing shortages and reshape urban growth. In late May, Texas lawmakers approved a landmark reform (Senate Bill 840) that allows residential development “by-right” on commercially zoned land in all major Texas cities. This means developers can now build apartments and mixed-use housing on sites previously limited to strip malls or offices without needing a lengthy rezoning process. The impact could be transformative: Texas faces an estimated 320,000-home shortage, and by opening up “vast swaths of underutilized commercial real estate to residential use,” the new law aims to jump-start multifamily construction in cities like Dallas, Houston, Austin, and San Antonio. Developers are poised to benefit from streamlined approvals and lower costs, especially in areas with high office vacancies where conversions to housing can now happen faster. Texas joins a national upzoning trend – states like California and Washington have recently passed similar laws enabling more housing density on existing urban land. The goal across the board is to curb urban sprawl by channeling growth inward: instead of endless new subdivisions on the fringe, policymakers want to revitalize underused shopping centers or office parks into housing, thereby leveraging existing infrastructure.

Other cities are following suit with their own zoning overhauls. New York City at the end of 2024 approved its “City of Yes for Housing Opportunity” plan, the “most pro-housing zoning proposal” in NYC’s history, which upzones parts of the city to allow ~20% more housing in medium/high-density districts in exchange for affordability, legalizes accessory dwelling units, and eliminates parking mandates in many areas. This effectively removes minimum parking requirements for new residential buildings in most of Manhattan and core parts of Brooklyn/Queens – creating the nation’s largest zone with no parking mandates to enable more housing over parking lots. The plan also eases office-to-residential conversions by adjusting zoning rules and launching a City Hall “Office Conversion Accelerator” to cut red tape. These changes aim to unlock tens of millions of square feet of vacant office space (NYC has 23 million sq ft of offices proposed for conversion) for desperately needed apartments.

On the West Coast, San Francisco recently launched a similar adaptive reuse program, offering tax breaks and fee waivers to spur conversions in its half-empty downtown. And Austin, Texas – in a local complement to the state bill – last year enacted sweeping land use reforms reducing minimum lot sizes for single-family homes and allowing apartment buildings in more areas, in order to boost density along transit lines and tackle its affordability crisis. These zoning shifts share a common theme: loosening historically rigid land-use rules to encourage infill development and diversified housing types. By permitting duplexes, fourplexes, and mid-rise apartments where only single houses stood, cities hope to increase supply and slow rent and price growth.

There is resistance, of course – in Austin, some residents feared upzoning would accelerate gentrification and displacement, and in New York a third of councilmembers voted against the plan, especially from suburban-style neighborhoods worried about added density. However, the urgency of the housing crunch is overpowering many NIMBY objections.

The immediate impact of these reforms is a flurry of new project proposals. Developers who had been stymied by zoning are moving forward with plans: for example, in Dallas, a major “missing middle” housing initiative (ForwardDallas) could add gentle density in single-family zones – unless a pending state preemption law (HB 2127) blocks cities from such action. And in Florida, the 2023 Live Local Act (amended again in 2025) now forces cities to allow higher-density and mixed-use affordable housing on commercially zoned land, overriding local zoning to expedite projects.

In sum, America’s zoning regime – long a barrier to growth – is bending to accommodate the need for housing. The likely long-term effect is more mixed-use, multi-family development within existing urban footprints, helping to curb sprawl. By reusing mall sites, office parks, and other greyfields for housing, cities can grow “up and in” rather than out, potentially reducing commute distances and preserving peripheral green space.

Key Development Projects: Several high-profile real estate development projects are underway or nearing completion, signaling where growth is concentrated and the economic impacts at stake. Notably, mixed-use mega-developments are a defining trend in 2025. For instance, in Queens, New York, ground is being cleared for the transformative Willets Point Redevelopment adjacent to Citi Field. This $3 billion project is converting a 62-acre blighted area (formerly auto shops and scrapyards) into a new urban district featuring 2,500 affordable housing units, retail space, a public school, and a professional soccer stadium. By 2027, the New York City Football Club’s $780 million stadium is slated to open on the site, anchoring what was once a barren expanse with sports and housing.

The economic impact for the local community is significant: Willets Point will create thousands of construction jobs and, once complete, provide housing for low- and moderate-income New Yorkers in a transit-accessible location (the 7 subway and LIRR serve the area). The project’s mixed-use nature – blending residential, commercial, civic, and entertainment uses – exemplifies modern urban redevelopment, aiming to create a vibrant live-work-play environment rather than a single-use enclave.

In Texas, the Houston area has its own billion-dollar community rising. Park Eight Place in west Houston broke ground in late 2024 and is projected to cost $1 billion. Spanning 70 acres in the Westchase district, Park Eight Place is master-planned to integrate green healthy living – it will connect directly into a 200-acre park via trails and incorporate sustainable design and wellness amenities. Upon completion, this development will offer a blend of residential units, retail, dining, and hospitality, effectively creating a new urban village. The economic impact is twofold: it revitalizes an underutilized tract within the city (reducing pressure to develop outer suburbs) and generates jobs during construction and in the new businesses that will occupy the space.

Another notable project is Highland Bridge in St. Paul, Minnesota – a $1+ billion redevelopment of a 122-acre former Ford auto plant site. Highland Bridge is delivering 3,800 housing units, 150,000 sq. ft. of retail, 265,000 sq. ft. of office, and 55 acres of parks along the Mississippi River. Impressively, it boasts 100% renewable energy via the largest urban solar array in the region, aligning with sustainable development goals. The project is expected to create over a thousand permanent jobs and has already drawn major employers and residents, giving St. Paul an economic boost and a national model for eco-friendly neighborhood design.

Across the Sun Belt, fast-growing metros are seeing massive mixed-use complexes as well. Near Raleigh, North Carolina, construction commenced on Veridea – a ~1,100-acre new town in Apex, NC, backed by New York developer RXR. This $3 billion project will include 8,000 residential units, millions of square feet of offices and retail, an industrial campus (including a community college), plus schools and parks. Essentially, Veridea is building an entire mini-city to accommodate the Research Triangle’s booming population. Such a scale of development will reshape the local economy, creating a significant tax base and tens of thousands of jobs (both construction and ongoing).

The economic impact is generational: new housing for thousands of families, space for new businesses, and infrastructure (schools, roads) that will last decades. It also exemplifies how investors are targeting high-growth suburban corridors – rather than develop piecemeal subdivisions, they are master-planning large mixed-use hubs that can evolve into self-contained communities.

In the Southwest, Tempe, Arizona is witnessing the rise of South Pier, a $1.8 billion waterfront community on Tempe Town Lake. Developed by a New York team (Cantor Fitzgerald and Silverstein Properties), South Pier’s first phase “Shorehaven” topped out this year, bringing hundreds of luxury condos and retail space, with future phases to add hotels, offices, and even an entertainment pier. This is poised to cement Tempe’s status as a vibrant urban center within metro Phoenix, diversifying its economy beyond the university (ASU) with new corporate and entertainment draws.

Investment Opportunities: The recent zoning changes and development trends open up new avenues for investors and developers to capitalize on. With zoning barriers lowering, one clear opportunity is in adaptive reuse and infill development. The Texas bill and Florida’s Live Local Act mean that investors can snap up obsolete retail centers or half-empty office buildings and convert them to apartments by-right. This dramatically cuts entitlement risk and time – a strip mall on the edge of Dallas, for example, could be redeveloped into a multifamily complex without years of public hearings.

Such projects were often non-starters under old zoning; now they are not only feasible but encouraged. “By-right approval could open up vast swaths of underutilized commercial real estate to residential use,” as CRE Daily notes, which is “a major win for multifamily builders looking to scale in urban areas constrained by local zoning.” In practical terms, developers should look at aging shopping plazas, vacant big-box stores, or outdated office parks in big cities and suburbs – many of these may now be fair game for redevelopment into mixed-use residential without having to fight NIMBY opposition via rezoning.

In places like Austin or Los Angeles, where new state laws already allow duplexes on single-home lots, small-scale infill (ADUs, duplex conversions) is another scalable play: aggregating and building multiple infill housing units that were previously disallowed.

Another key opportunity lies in the multifamily and mixed-use sector, which is clearly being prioritized by policy changes. Investors can focus on multifamily development in markets with pro-housing zoning reforms, knowing that local governments are likely to fast-track approvals. For instance, a developer of affordable or mixed-income housing in Florida can leverage the Live Local Act to override local density limits – potentially receiving height and density bonuses for including affordable units and skipping certain public reviews.

Likewise, in San Francisco’s downtown, a savvy investor might partner with the city’s conversion program to acquire a distressed office tower at a steep discount and convert it to apartments or labs with tax incentives (SF’s new financing district reinvests tax increments to offset conversion costs). Many cities are offering tax abatement, expedited permitting, or subsidies for conversion projects – these public-private partnerships can significantly boost returns on otherwise struggling assets.

Emerging Trends: Several cutting-edge trends in development are taking hold in 2025 that will shape the real estate landscape in coming years. Sustainable “green” building practices have gone mainstream in large projects. Developers are increasingly targeting net-zero carbon footprints and incorporating renewable energy on-site. For example, the Habitat project in Los Angeles (Culver City) is a new 3.5-acre mixed-use complex designed to be a net-zero carbon property, complete with integrated solar panels and dozens of EV charging spots.

Similarly, St. Paul’s Highland Bridge is running entirely on renewable power with expansive solar arrays. This trend is driven both by environmental regulation in some cities (building emissions laws) and by market demand – tenants and investors prefer efficient, climate-friendly buildings as energy costs rise and climate concerns mount. We can expect future developments to routinely feature solar panels, green roofs, advanced insulation, and electrified building systems (no on-site fossil fuel combustion) as standard practice. Many projects now pursue LEED Gold or Platinum and even newer standards like WELL certification for healthy buildings.

Another emerging trend is the integration of smart city technology and data-driven planning. As cities aim to become “smarter,” new developments are acting as testbeds for tech integration. This includes features like IoT sensors to manage lighting, traffic, and waste, high-speed broadband and 5G infrastructure baked into the community design, and digital platforms for residents to engage with local services.

For instance, some master-planned communities are offering smartphone apps for residents to control home systems, book amenities, or even report maintenance issues – bringing a tech-like user experience to real estate. City planners are also using big data to determine zoning changes; for example, analyzing traffic and transit data to decide where upzoning will have least impact on congestion. In practice, the rise of proptech and smart infrastructure means new buildings come equipped with advanced building management systems (BMS), and new districts might feature smart traffic lights, sensor-equipped streetlights, and community WiFi zones. These not only improve efficiency and quality of life, but also can enhance property values (a “smart” building can command higher rent due to lower operating costs and modern appeal).

Lastly, resilience and adaptive design are key trends, especially in response to climate risks. Coastal developments now routinely incorporate flood mitigation – e.g. raised foundations, seawalls, or stormwater parks – and cities like Miami are updating zoning codes to require higher elevation for new projects. The NYC “City of Yes” plan explicitly took into account flood-prone areas where ADUs might be restricted. Developers are focusing on resilient construction (hurricane-proof materials, backup power systems) as a selling point.

Additionally, mixed-use “15-minute city” concepts are influencing design: the idea that residents should have access to most daily needs within a short walk or bike. Many of the big projects mentioned (Willets Point, Veridea) plan to include housing, jobs, shops, parks all on-site – this reduces car dependence and appeals to communities looking for vibrant, walkable neighborhoods. It dovetails with zoning reforms removing parking minimums; cities want to encourage transit use and walkability, and new developments are reflecting that with pedestrian-friendly layouts and micromobility support (bike lanes, scooter parking, etc.).

In summary, the development outlook is greener, more tech-enabled, and more holistic. The projects rising today are not just buildings, but thoughtfully planned communities using sustainable tech and mixed-use principles. These innovations will shape future markets by setting new expectations: tenants will come to expect smart home features and green energy, cities will favor projects that deliver community benefits and resilience, and investors will seek out developers at the forefront of these trends. The real estate industry in 2025 is thus pivoting to build not only more housing, but “smarter” housing and communities that will be more efficient, inclusive, and adaptable for decades to come.

Sources: CRE Daily Texas zoning report; City of New York Zoning Release; CommercialCafe Office Conversion report; Texas Tribune (Austin reforms); UnderTheHardHat development roundup; Smart Cities Dive; CRE Daily Multifamily briefs.

Market Sentiment: As the third quarter of 2025 begins, investor sentiment toward real estate is cautiously optimistic, underpinned by signs that the market is stabilizing after a two-year slump. Institutional capital is gradually returning to real estate: nearly 40% of global institutional investors plan to increase allocations to private real estate in the next two years, up from only 25% a year ago. This shift, captured in a June 2025 survey by Nuveen, suggests that big investors see opportunity at current valuations. Indeed, property values have corrected significantly since their 2021 peak (down ~10–20% in many sectors), and many investors now view real estate as entering a sustainable recovery phase. The sentiment is that much of the “froth” has been removed: real estate has de-risked relative to other asset classes by going through its correction early (2022–2024), so even though broader economic uncertainty (inflation, war, etc.) persists, real estate looks comparatively attractive for long-term plays.

Capital flows data back this up – global real estate investment volumes ticked up in late 2024 and into 2025. In H2 2024, total cross-border real estate flows to North America, Europe and Asia-Pacific jumped 31% year-over-year to $37 billion. This resurgence defied concerns that interest rate hikes or geopolitical conflicts (like the war in Ukraine) would freeze investment; instead, investors adjusted to higher rates and kept deploying capital, albeit more selectively. Sentiment surveys also show that investors remain concerned about macro risks – inflation, rate volatility, and political uncertainty are top of mind – but they are not in a “wait-and-see” paralysis as they were in 2022. Rather, the mindset has shifted to “Where can we find value in real estate now?”

One answer is defensive, income-producing assets. There is a notable preference for property types seen as resilient to downturns: “Investors today should consider more defensive property types like medical outpatient buildings, grocery-anchored retail, middle-market residential, and light industrial,” advises a recent Institutional Investor analysis. These are assets tied to essential services or affordable price points – likely to maintain occupancy and cash flow even if the economy softens. In terms of capital flows, this is reflected by strong investor appetite for multifamily rental portfolios, necessity-based retail centers, warehouses tied to e-commerce, and healthcare real estate (hospitals, senior housing).

Conversely, sentiment is still bearish on office and certain segments of retail. Many investors view office properties, especially in CBD markets, as value traps unless deeply discounted. Office usage remains low (U.S. office occupancy is hovering around 50% of pre-pandemic levels in many cities), so investors are either avoiding offices or demanding steep price discounts and a clear conversion/redevelopment angle. Overall, the real estate investment mood for Q3 2025 is one of guarded confidence: there is recognition that challenges remain (elevated interest rates, refinancing risks, regional economic divergences), but also a growing belief that the worst may be behind and opportunities are emerging for strategic buys.

Top Performing Asset Classes: The current market has stark performance disparities by sector. Industrial and logistics real estate and rental housing continue to be standout performers, while office properties lag far behind. In terms of investor returns and interest: surveys show data centers, industrial warehouses, and residential (multifamily) are the top sectors investors are targeting for new allocations. Nuveen’s 2025 investor poll saw a significant jump in interest for data centers (reflecting the digital economy boom) and self-storage facilities – the share of investors planning to boost allocations to self-storage nearly doubled from 16% to 29%. Meanwhile, traditional sectors like office have few takers: office REITs have been the worst-performing REIT group year-to-date, with total returns around –16% as of mid-2025. Infrastructure REITs (e.g. cell towers) were also down (~–25%), but those are influenced by rising bond yields. On the flip side, healthcare REITs (medical offices, life science labs, senior living) lead with +18.9% returns YTD, showing investor optimism in that space.

Looking at fundamentals: industrial real estate (warehouses, distribution centers) has cooled slightly from its red-hot streak but remains very healthy. The national industrial vacancy has risen to ~7.1% (Q1 2025) from record lows, due to a wave of new supply, but demand is still robust and rents are rising modestly. Key logistics hubs in the Midwest have a tight sub-5.5% vacancy, and even Sunbelt markets with higher vacancies (some overbuilt like Charleston at 21%) are seeing vacancy leveling off as developers pull back on new projects. Industrial rent growth year-on-year is still positive (around 4–5% nationally in early 2025, down from double digits a year prior). Investors favor industrial for its long-term demand drivers (e-commerce, supply chain reconfiguration) and relatively low capex needs, so cap rates in core logistics assets have remained low (many in the 5-6% range). Notably, niche industrial like cold storage and last-mile urban logistics are commanding premium rents and attention.

Multifamily (apartments) also continues to yield solid returns. Occupancy rates for professionally managed apartments are holding in the mid-95% range nationally, although rent growth has decelerated sharply from the 2021 peak. Effective rents are roughly flat to up ~2% year-over-year as of mid-2025, with strength in some Midwest markets but softness in parts of the Sun Belt that added a lot of new units. Still, multifamily’s income stream is considered reliable – people need housing in any economy – and annual rent bumps, even if small, plus the potential for future appreciation once rates fall, make it attractive. Cap rates for multifamily have expanded with interest rates (up from ~4.5% in 2021 to ~5.5%–6% in many markets), but some forecasts expect multifamily cap rates to actually compress by a few basis points in late 2025 as financing costs stabilize. Among residential asset classes, single-family rentals (SFRs) are also top performers; institutional buyers are actively acquiring SFR portfolios, banking on rising rents and limited homebuying affordability pushing more households to rent.

Retail real estate is a mixed bag: essential retail like grocery-anchored shopping centers and power centers with big-box tenants have performed well (occupancies in the 90%+ and rents growing a few percent annually). In contrast, malls and high street retail in some cities are still recovering from the pandemic hit and e-commerce competition. However, even malls have seen a bounce off the bottom; foot traffic and sales are up this year compared to 2022, and Class A malls in high-income areas have nearly full occupancy. Private equity and some REITs have been buying open-air neighborhood centers aggressively due to their steady cash flows. Self-storage is an unsung hero – this sector had record occupancy and rent growth in 2021–22, and while it’s normalized now, investor interest is high because of its high operating margins.

Office is unequivocally the weakest major asset class. Office vacancies hit ~19.4% nationally in May – an all-time high – and are over 25–28% in markets like San Francisco and Houston. Average office rents have barely risen (~+4.8% YoY listing rate, which mostly reflects higher-end space being listed), and effective rents net of concessions are flat or down in many cities. Office property values have fallen by 20-30% or more since 2019 in gateway markets; distress is mounting as loans come due. The only “top-performing” offices are niche segments like life science lab buildings in prime biotech clusters (which often fall under healthcare/tech more than traditional office) and newer trophy towers that still attract tenants seeking quality. As such, many investors see better returns in converting or repurposing office buildings rather than operating them as-is.

Risk and Opportunity Areas: In the current landscape, risks are most pronounced in any area heavily exposed to high interest rates and secular shifts like remote work. The obvious risk poster child is the office sector: oversupply of office space and persistently lower demand pose a continued risk of declining income and asset write-downs. Office leases are rolling over to lower market rents, and approximately $116 billion in CRE debt is now distressed as of mid-2025, much of it tied to offices with looming refinancing hurdles. Investors holding older office buildings face the risk of value “obsolescence” – if they can’t lease them, the value could drop to land value (especially for commodity B/C class offices). Similarly, downtown retail in some cities remains risky, given remote work has reduced foot traffic on weekdays and some urban cores haven’t fully rebounded in tourism or population.

Another risk area is interest rate exposure itself. Many property owners who took on floating-rate debt or need to refinance fixed-rate loans in 2025–2026 are grappling with much higher financing costs. Cap rates expanded significantly over the past 18 months, directly reducing property values. While the Fed has paused hikes for now, rates are still near multi-decade highs; if inflation surprises to the upside, further tightening could occur, which would directly pressure real estate values via higher cap rates and financing hurdles. Conversely, if a recession hits, that could hurt occupancy and rent growth in most sectors. Thus, investors need to be mindful of leverage risk – well-capitalized properties with low leverage will weather storms, whereas over-leveraged deals could default.

Geopolitically, trade tensions and tariffs pose risk for construction-heavy segments. The recent U.S. tariffs on Canadian lumber and Chinese steel, for example, raised construction and renovation costs for developers. This can squeeze development margins and has already slowed some projects. Additionally, insurance costs and climate risks are a growing concern, especially in coastal and Sun Belt markets. Florida and California investors are seeing insurance premiums skyrocket (or policies dropped) due to hurricanes, floods, wildfires – this can make operating expenses unpredictable and deter lenders. Investors might shy away from markets like coastal Florida despite high growth potential, due to the risk of storms and insurance unavailability.

On the opportunity side: distressed asset acquisitions and alternative investment structures are areas to watch. As distress deepens in office and perhaps some overbuilt multifamily pockets, opportunistic investors (including private equity and special situation funds) are preparing to buy distressed loans or properties at deep discounts. We’ve seen this already: Blackstone and others have been scooping up discounted loan portfolios (e.g. Blackstone recently bought $2B in CRE loans at a discount), betting they can restructure or wait for a rebound. Family offices and value-add funds are targeting “broken” luxury condo projects or hotels that can be converted to apartments. The opportunity is that the pricing reset can yield outsized returns if one buys at 60 cents on the dollar and markets recover somewhat.

Investors are also turning to alternative investment vehicles. Real Estate Investment Trusts (REITs) and fractional ownership platforms are gaining traction as ways to gain exposure without directly buying properties. Interestingly, public REITs traded at steep discounts to NAV for much of 2024, and although those discounts have narrowed a bit by June 2025 (average REITs at ~20-22% discount to NAV, improved from ~26% earlier), many analysts see public REITs as undervalued relative to private real estate. This could be an opportunity for retail investors or institutions to increase REIT holdings ahead of a potential rally if interest rates fall. Additionally, fractional ownership and crowdfunding platforms are providing access to properties for smaller investors. While caution is warranted (crowdfunding saw a scandal with one platform’s $63M fraud recently), the shift towards democratizing real estate ownership is notable. Some investors may find value in preferred equity or real estate private credit – with banks pulling back, private lenders can charge high yields to finance projects, creating an investment opportunity in real estate debt with double-digit yields in some cases.

Data-Driven Insights: By the numbers, cap rates and yields have risen across property types over the past year, reflecting repricing. Prime multifamily cap rates now average ~5.25%–5.75% in major markets (up from sub-4.5% in 2021), prime industrial ~5.0%, prime retail ~6–7%, and prime office in top markets around 6% but effectively much higher for secondary offices (where few buyers exist). This repricing means new acquisitions today generally generate higher going-in yields than recent years, which is positive for investors deploying fresh capital (future returns start from a higher yield base).

Rental growth data shows divergence: national apartment rents are roughly flat year-over-year (0–2% growth), with Sun Belt cities like Phoenix and Austin seeing slight rent declines due to supply, while some Midwest and Northeast cities (e.g. Cleveland, parts of upstate NY) are seeing above-average rent growth (projected 4–5% for 2025). Upstate New York actually leads the pack for projected rent growth according to one June report, as those markets have tight supply and migration from pricier areas. Industrial rents, after surging ~20% annually in 2021, have moderated to mid-single-digit growth; e.g. New Jersey industrial rents are still up ~9.8% YoY (leading the nation), thanks to scarce warehouse space near NYC, whereas some markets with lots of new warehouses (Dallas, Atlanta) have seen rent growth slow to ~2-3%. Office rents on paper show +4.8% YoY asking rent growth, but that is misleading – effective rents net of free rent and TI concessions are down in most markets. The national office vacancy of 19.4% in May tells the story: landlords are competing for few tenants, so concessions are high. For Class A offices in prime locations, asking rents have held or even risen (especially for small suites catering to AI or life science firms), but for Class B/C space, rents are being discounted significantly (in some cases 20-30% below pre-pandemic rates) to attract tenants.

Vacancy rates by sector: Multifamily: around 6.3% nationally (up slightly from 5% in 2021; new supply in Sun Belt pushed vacancy there to ~8% while many coastal cities are ~4-5%). Industrial: 7.1% nationally as noted (with a likely peak around 8% later in 2025 before trending down as construction slows). Retail: neighborhood/community retail vacancy ~6-7% (quite healthy), regional mall vacancy ~8%. Office: 19.4% nationally, but again a tale of two tiers – modern amenitized offices in use have lower vacancy, whereas older stock is largely responsible for the high vacancy.

Capital Markets Data: Commercial real estate transaction volumes are down ~50% year-to-date compared to the 2021 frenzy, but Q2 2025 showed a mild uptick from Q1 as price expectations between buyers and sellers start to align. Through May 2025, around $19.6 billion in office sales transacted in the U.S., which is low, but notable that deals are happening at adjusted prices (e.g. Los Angeles saw $1B in sales, albeit at prices ~30% below 2022 values on average). Multifamily sales volume is stronger – investors are still eager for apartments, and while volume is below 2022’s pace, there’s liquidity especially for quality assets or portfolios. Cap rates are beginning to plateau, suggesting we may be near the end of price discovery. In fact, CBRE forecasts minor cap rate compression in 2025 for industrial, retail, multifamily and only a small continued decompression for office, assuming interest rates stabilize.

Predictions for the Future: Looking ahead through the remainder of 2025, several macro factors will heavily influence real estate investing. Monetary policy is key – the consensus is the Fed will start cutting interest rates by Q4 2025 or early 2026 if inflation continues to ease. Many experts predict at least two rate cuts (maybe 50 basis points total) by the end of 2025, which could bring the Fed funds rate down to ~3.75–4.0%. If such cuts materialize, borrowing costs for real estate will fall, likely leading to a revival in transaction activity and a stabilization or even slight increase in property values. Mortgage REITs and other lenders are watching for this inflection point. However, Fed Chair Powell has been clear he won’t cut too soon – “not through the third quarter of 2025,” he suggests for any rate relief – so investors shouldn’t bank on cheap debt this summer. But once the market sniffs out rate cuts, we could see cap rates start to compress as financing gets a bit easier and competition for properties increases.

Geopolitical factors may introduce volatility. The ongoing war in Eastern Europe (Ukraine) and tensions in East Asia could impact energy prices and global capital flows. So far, real estate has shrugged off these to an extent (as seen by rising flows in late 2024), but an escalation or new conflict could spook investors and push them towards safer havens (U.S. Treasurys), which might temporarily hurt real estate capital availability. Additionally, U.S.–China relations and tariffs remain an X factor: new tariffs or supply chain disruptions could raise construction costs or delay projects, impacting development pipelines.

Domestically, the 2024 election results are now shaping policy in 2025. The Trump administration’s stance is pro-growth in some ways (e.g. tax cuts, deregulation) but also populist (tariffs, curbs on immigration). The big tax cut enacted in early 2025 – adding $3.3 trillion to the debt – has already pushed up Treasury yields a bit, which ironically keeps mortgage rates higher. If further fiscal stimulus or spending on infrastructure occurs, that could benefit real estate via jobs and better infrastructure, but also could pressure interest rates upward. Housing policy changes might emerge too: there’s talk of expanding federal incentives for affordable housing and conversions (both parties want to address housing costs). Should a major housing bill pass (for instance, tax credits for office conversions or increased Low-Income Housing Tax Credits), that could create niche investment booms. Conversely, any changes to tax benefits – e.g. limits on 1031 exchanges or carried interest – could affect investor behavior, though such changes seem unlikely in the current political makeup.

In summary: real estate investors in Q3 2025 should focus on resilience and positioning for a recovery. That means privileging asset classes with durable demand (housing, industrial, essential retail), taking advantage of any distressed pricing in high-quality assets, and utilizing alternative investments (REITs, private debt) for diversification. It also means keeping an eye on the Fed and global events – a dovish Fed pivot or peace in a conflict zone could boost confidence, whereas an inflation resurgence or major geopolitical shock could delay the rebound. But with prudent strategy, the remainder of 2025 could mark the turning point where real estate shifts from defense to offense, rewarding investors who navigate the risks and seize the opportunities in this evolving market.

Sources: Institutional Investor – Global Real Estate Outlook; Redfin/NAR housing stats; CRE Daily market data; CommercialCafe Office Report; Nuveen EQuilibrium Survey; DoorLoop REIT statistics; Reuters Federal Reserve coverage; CBRE and JLL forecasts; Cushman & Wakefield research.

America’s office buildings are facing an unprecedented slump. Nationwide office vacancies hit a record high around 20% as of late 2024, reflecting a permanent drop in demand due to remote and hybrid work. Downtown towers, especially older ones, are struggling to find tenants, leaving many floors dark. High interest rates have compounded the pain, eroding property values and putting hundreds of buildings at risk of loan default.

Fresh data show distress in the office sector is no longer theoretical – it’s here. Analytics firm Trepp has flagged 279 U.S. office loans (about $9 billion in debt) tied to buildings with less than 60% occupancy. More than half of those properties can’t cover their debt payments (DSCR < 0.9), a sign of severe cash flow strain. Many of these loans come due between 2025 and 2027, just as borrowing costs hover around multi-decade highs. New financing for offices now often carries interest rates of 7%-plus, far above the sub-5% rates of a few years ago.

A two-tier market is emerging. Modern, amenity-rich offices in prime locations are holding value and can still attract buyers. But older, outdated towers – many built in the 1970s or earlier – make up the bulk of the troubled loans and are rapidly losing appeal. Major cities like New York, Los Angeles, San Francisco and Chicago hold the largest concentrations of these distressed properties. Lenders, scarred by $116+ billion in troubled commercial real estate debt, have little appetite to “extend and pretend.” Some banks are even exiting the business: Germany’s Pfandbriefbank is unloading a $4.7 billion U.S. CRE portfolio amid the turmoil. In place of banks, private credit funds are swooping in, though regulators warn non-bank lenders could amplify risks if the downturn deepens.

Investor Takeaway: For opportunistic investors with cash, this may be a once-in-a-cycle chance. The office sector’s pain is creating selective opportunities for investors who can navigate high vacancy and high financing costs in exchange for deep discounts.

After years of red-hot gains, the U.S. housing market has entered a deep cooling phase. Home prices nationally are barely rising now – up just 0.7% year-over-year as of May – a stark deceleration from double-digit jumps seen during the pandemic. In fact, prices ticked down 0.1% between April and May. Sales have slowed to a crawl: new home purchases plunged 13.7% in May compared to the previous month, and existing home sales remain subdued.

The result is a growing pile-up of inventory. At the current sluggish sales pace, there is nearly a 9.8-month supply of new houses on the market – a level of excess not seen since 2011. Builders have continued to add units, but many buyers have hit pause.

Mortgage rates hovering around 6.8% – roughly double pre-2022 levels – have pushed ownership out of reach for millions. The median new home sold for $426,600 in May, up 3% from a year earlier. Meanwhile, the typical 30-year mortgage payment on a median-priced house now exceeds $2,500 a month, requiring an annual income of roughly $125,000 to qualify. Only about 6 million of America’s 46 million renters earn enough to afford the median home price. Even for those who stay renting, relief is scant – over half of renters are now paying more than 30% of their income on housing.

Homeowners who locked in 3% mortgages are reluctant to sell, keeping resale inventory tight. Builders in hotspots like the Sun Belt are cutting prices and offering incentives. Redfin shows only 31% of homes sold above asking price this spring – the lowest share in five years. Regional divergence is strong: Tampa and Austin saw price drops, while parts of the Midwest and Northeast remain strong.

Investor Takeaway: Real estate investors should brace for a choppy housing market in the near term. However, a collapse appears unlikely. Build-to-rent and investing in homebuilders with strong balance sheets are likely to outperform.

New York’s real estate investors just got a wake-up call from the ballot box. Progressive politician Zohran Mamdani has emerged as the front-runner in the Democratic primary for NYC mayor, campaigning on a radical housing platform that includes a citywide rent freeze. His surprise lead sent NYC landlord stocks into a tailspin.

Shares of REITs like AvalonBay and Equity Residential tumbled. Office giant Vornado fell over 6%. Mamdani’s platform also includes property tax hikes and public transit funded by wealth taxes. Lenders are reacting too: Flagstar Bank, a major apartment lender, dropped 4% on fears of higher defaults.

Many NYC landlords are already strained by expenses and regulation. If a freeze is enacted, some may default. Analysts warn of "handing back keys" to lenders. Mamdani still faces a runoff and a general election, and some expect his policies to moderate under pressure.

Investor Takeaway: Policy risk is real. Investors should factor local politics into decisions, especially in regulation-heavy metros like NYC. There may also be value plays as REITs sell off on fear-driven momentum.