Stability is the name of the game when it comes to the priorities of real estate investors heading into 2025, with attention turning to the nation's Sun Belt as markets across the southeast maintain their post-pandemic expansion streak.
Dallas won the leading spot as the most promising market for property and investor demand in 2025, positioning it at the top of the lineup in the latest “Emerging Trends in Real Estate” report that consulting firm PwC produces for nonprofit real estate research and policy organization Urban Land Institute.
The Texas metropolitan area's new title as the top city for overall real estate prospects is a major shakeup to rankings of years past. Fellow Sun Belt market Nashville, Tennessee, which in 2023 became the first to claim the No. 1 spot for three straight years, fell to fifth place in ULI's latest report. Cooling growth in the Music City meant it was overtaken not only by Dallas, but by Miami, Houston, and Tampa, Florida. Ranking behind Nashville were New York; Detroit; Columbus, Ohio; Charleston, South Carolina; and New Orleans.
Since the onset of the pandemic, markets in states such as Texas, Florida, Tennessee, North Carolina, and Georgia have dominated the annual rankings, determined based on investor sentiment and economic factors that help gauge future demand in any particular area.
The 2025 report was based on data and interviews with upward of 2,000 stakeholders across North America that collectively shed a light on how the turbulence facing the broader commercial real estate market over the past several years is ultimately expected to settle.
In addition to a return to stability, other emerging trends ULI mentioned in its report included: a supply gut weighing down high-growth apartment markets, rising insurance costs due to climate change risks, and the dominance of data centers fueling a surging demand for cloud computing and artificial intelligence.
"While challenges persist across the real estate sector, there are signs of improvement after years of hardship," Andrew Alperstein, a partner with PwC’s U.S. real estate practice, said in a statement. "Industry optimism has grown in the last year, though there is an understanding that recovery will be gradual. Looking ahead to 2025, firms should focus on managing short-term risks and adjust their growth strategies to succeed in this reawakening."
Bigger in Texas
While many U.S. markets have been stymied by lingering effects of the COVID outbreak, the Lone Star state plays home to regions that have benefited from what ULI describes as "an enviable post-pandemic recovery."
In Dallas alone, total employment has soared beyond 11% since February 2020, solidifying its spot as the fourth-fastest-growing metropolitan area in the United States. The Texas capital of Austin, with a nearly 17.5% spike over that same time, is the first.
The size and extended demographic growth that have played out across the state's largest cities have attracted a broad pool of investors despite the financial hurdles that have arrested activity in other markets throughout the country. What's more, Texas' reputation as a business-friendly hub has brought in a slew of large employers that have relocated from higher-priced areas such as San Francisco or Silicon Valley, further driving development and economic growth across the state.
In Houston — which this year ranked among ULI's top 10 markets for the first time — the city's previous reliance upon the energy industry has since evolved into it hosting a diverse mix of industries that have catapulted the region's expansion. Already one of the largest metropolitan statistical areas, Houston last year reported the country's second-largest population bump, a figure investors have long used as a critical yard stick in determining where and how much to build.
Along with San Antonio and Austin, both included among the list's top 15 North American markets to watch, Texas' ongoing growth spurt has been especially attractive for investors who — while increasingly optimistic about the future outlook for the real estate sector — remain cautious.
Back to normal
As the notion of stability gains traction across the industry, ULI expects a marketwide shift to begin to unfold that more closely resembles a normal commercial real estate cycle.
While there is still some lingering uncertainty, tenant demand has recovered or at least settled across most property types in a number of U.S. markets. Valuations, especially those for office properties, appear to have hit rock bottom. Interest rates, which were recently lowered and are expected to fall further for the foreseeable future, can help clarify the cost of capital.
Bottom line: A market recovery is expected to be slow, but consistent.
"My sense is that 2025 will start slow [but will] pick up as the year goes along," a regional investment manager told ULI. "It'll be a decent year when everybody looks back at it, but I think 2026, 2027, out there, it looks kind of exciting."
Interest rates and the cost of capital was the third greatest concern among real estate stakeholders surveyed by ULI for the latest report, which was conducted prior to the Federal Reserve's September rate cut. That's an improvement compared to last year's survey when it was by far the leading concern, and more than 80% of respondents said they expect commercial mortgage rates will further decrease next year.
That isn't to say the floodgates will open as soon as the clock strikes on the new year. Some real estate professionals say the softening economy will once again throw tenant demand into question, and some investors want to see more improved fundamentals and transactions before they open wallets on new deals themselves.
Even so, after years of scrambling to adapt to pandemic-induced shifts, the survey points to far more optimism scattered across the market compared to this time in 2023 — especially when it comes to the anticipated interest rate trajectory.
"It’s the signal more than the level," one head of product management told ULI. " It’s a psychological boost that the Fed’s effectively saying, ‘We’re pivoting. We think that we’ve done what we need to do.' It doesn’t change the math much, but it does change the behavior, potentially."
Gauging demand
The pandemic fundamentally transformed how people use space, throwing property types into a state of upheaval that is beginning to resettle.
Fewer people commute to an office, retailers dumped space in older shopping centers and fled to centrally located properties with an attractive tenant lineup, and the construction boom across both the industrial and multifamily sectors — which hit record highs in the early years of the pandemic — will test the durability of tenant demand.
With the exception of office, the demand for space has largely recovered any pandemic-related losses, ULI reported, with occupancy levels now at or exceeding pre-2020 levels.
For office, however, the impact of remote work, layoffs, and the widespread downsizing among tenants means few real estate professionals expect the sector to make significant progress on its recovery effort over the next year. Even with many companies' escalating their in-person mandates, 5 million more employees are working from home at least one day a week compared to this time last year, according to the U.S. Bureau of Labor Statistics.
"The pandemic sent the office sector into the penalty box, where it remains," the ULI report said. "Demand is weak, the vacancy rate has not stopped rising, expenses are high, and the return to office has plateaued."
Investors ranked the office sector as the property type with the worst outlook for 2025, according to ULI. While there was a slight improvement compared to the overall sentiment reported last year, both urban and suburban offices remained at the bottom for both investment and development prospects in 2025.
Throughout the multifamily market, many stakeholders expect demand will hold despite a record influx of new supply.
After hitting a peak in 2021, especially among Sun Belt markets, apartment leasing activity has softened somewhat but is still driven by factors such as reliable demographic growth, the ability to work from home, a challenging single-family housing market and a thinner construction pipeline. More than 500,000 units are expected to be completed before the end of this year, according to ULI and CoStar data, but expensive construction financing and a worsening labor shortage have already plunged the number of new construction starts.
Even if not every property type is firing on all cylinders, on a basic level, their overall health and future are far more certain.
"Industry leaders are more confident than a year ago, though they remain watchful for the right time for the right asset," the report stated. The "key to laying the groundwork for the next few years is the clarity that property markets are no longer undergoing the sudden shifts in how tenants use space as we saw during and immediately after the pandemic. Investors are now shifting their attention to cyclical issues, such as the recent excess in supply, and adapting to the developing tastes, needs, and strategies of consumers and tenants."