- Office recovery exceeded expectations, with national vacancy rates showing the first meaningful improvement since 2020 — especially in Class-A assets.
- Data centers continued their exponential growth, expanding beyond traditional hubs and increasingly powered by alternative energy sources.
- CRE investment bounced back sharply, with transaction volume up 17% year-over-year, fueled by improved lending conditions and strong private capital participation.
- Predictions on bank CRE loan distress were overblown, as write-downs were less widespread than expected, though exposure to office remained a concern.
A Year of Surprises — And a Few Bullseyes
According to Bisnow, for an industry defined by long-term bets, 2025 delivered more unpredictability than most could have anticipated. From political upheaval under a second Trump administration to shifting economic signals, many of the forecasts made at the end of 2024 felt outdated before Q2 even started. Yet, despite the chaos, several predictions — particularly around office space and data centers — held up.
Office Vacancy Will Start Decreasing
After years of sluggish return-to-office trends, the US office sector finally found some footing. Vacancy dipped to 18.8% by Q3, marking the first annual decline since early 2020. Leasing activity hit 59.8M SF, topping the five-year average. Demand for trophy and Class-A buildings surged, while older and Class-B assets continued to struggle.
Though uneven across markets, this shift signals a bottoming-out in the office market, according to CBRE and other research heads. Vacancy in top-tier buildings is expected to fall to 8.2% in the coming years, raising concerns about potential undersupply in this segment.
Banks Will See More CRE Write-Downs, Especially from Office Loans
Despite concerns about a wave of distress, CRE-related bank write-downs were more contained than anticipated. While some notable losses occurred — such as Zions Bancorp’s $50M charge-off — the overall rate of write-downs declined slightly from 2024.
Banks offloaded risky assets aggressively, especially in office and multifamily sectors. Regional banks like Flagstar and M&T reduced their office exposure, and private credit filled the gap, softening the blow to the lending market. However, delinquency rates did rise — particularly in office, multifamily, and hotel sectors — suggesting that pain was delayed rather than avoided.
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Multifamily Vacancy Will Decline
With 92,000 units delivered in Q3 alone and absorption down 73%, multifamily faced rising vacancy across major metros. Vacancy reached 4.4%, and rent growth remained stagnant, especially in Sun Belt markets still digesting a backlog of new supply.
Markets like Dallas, Austin, and Phoenix saw continued construction pipelines of 30,000+ units, overwhelming demand and limiting landlords’ pricing power. High rates and slow job growth further hampered leasing activity.
Data Centers Will Expand Beyond Hubs and Turn to Renewable Energy
The data center boom accelerated, with 8 GW of colocation capacity under construction, up 17% year-over-year. Virginia continued to lead, but nontraditional markets like North Dakota, Michigan, and Louisiana entered the scene with new permits and builds.
To power this growth, the industry leaned increasingly on renewables and localized power sources. A Bloom Energy study found 38% of new data centers will use on-site power by 2030, including solar, wind, and even nuclear. Investment in large-scale energy infrastructure tied to CRE continues to rise, including major transactions involving high-value energy campuses. However, tension with utilities and local pushback — particularly over environmental concerns — remains a barrier to this rapid energy transition.
CRE Investment Will Rebound
Despite early-year skepticism, CRE investment volumes rose 17% year-over-year, outpacing CBRE’s 8% growth forecast. In Q3 alone, transactions totaled $112B, driven by private buyers and strong demand for multifamily and office properties.
Senior housing led the way with 61.5% YTD investment growth, as aging demographics caught up with undersupply. Office investment surprisingly jumped 35%, reflecting renewed confidence in certain high-quality assets. Retail and industrial also saw healthy gains, rounding out a year of robust recovery.
Looking Ahead: 2026 and Beyond
With CRE markets entering 2026 on stronger footing than many expected, industry watchers are cautiously optimistic. Investment volume may still be below prepandemic highs, but liquidity is loosening, and capital on the sidelines is beginning to flow.
At the same time, persistent vacancy in lower-tier office space, oversupply in multifamily, and grid constraints for data centers could present ongoing challenges.
As 2026 begins, expect more nuance in market performance, continued focus on asset quality, and increasing pressure for innovation — particularly in energy, finance, and space utilization.
