U.S. economy and CRE in 2025: just good, or actually great?

The U.S. economy and commercial real estate (CRE) markets in 2025 are walking a fine line between recovery and inertia. After several volatile years shaped by pandemic aftershocks, geopolitical uncertainty, and shifting fiscal policies, the current climate feels more like a reset than a renaissance. The big question: Are we entering a sustained, meaningful growth phase, or is this just a temporary bounce? Let’s take a clear-eyed look at the data, trends, and real-world momentum behind the headlines.

The economy in 2025: stability with caveats

According to sources including the Bureau of Economic Analysis, Federal Reserve Economic Data, Congressional Budget Office, Bureau of Labor Statistics, and International Monetary Fund, the U.S. economy in 2025 shows signs of moderate growth, with some persistent headwinds. GDP contracted slightly in Q1, dipping by 0.3%. Forecasts for 2025 range between 1.3% and 2.5%, highlighting the economy’s uncertain footing – not clearly in recession or expansion. While 2025’s growth estimates fall short of the post-WWII average of 3.2%, they outperform the post-2008 average of around 1.8%. It’s not a boom, but it’s not a bust, either. Instead, 2025 represents a new normal – moderate expansion in a structurally different economy. 

Inflation has returned as a key concern. After cooling in 2024, it climbed to 6.5% by April 2025. The main culprits: tariffs, rising labour costs, and ongoing supply chain issues. The Federal Reserve has kept interest rates between 4% and 4.5% to manage inflation without choking off growth. The significant risk remains inflation overtaking wage growth and denting consumer confidence. Employment data provides some balance. The unemployment rate is 4.2%, with a labour force participation rate of 62.6%. While blue-collar jobs are in high demand, competition has intensified in white-collar sectors. Wage growth has eased to 3.5%, suggesting some stabilization in inflationary pressures.

What does this mean in practice? For many, it means cautious optimism. Consumers are spending; businesses are investing – but with one foot on the brake. Risk appetite is modest, and resilience, rather than expansion, is the name of the game.

Commercial real estate: from caution to movement

The CRE market is turning a corner. After two years of stagnation, 2025 shows real activity. December 2024 closed with $55.7 billion in deal volume – a 59% month-over-month jump. That pace has continued into early 2025. Investor sentiment is improving. Buy recommendations, near zero in 2022, have risen to 33% in 2025. Institutional investors are deploying capital again, with about $400 billion in "dry powder" ready for acquisitions.

Still, the recovery is uneven. Industrial and retail properties are outperforming. Retail vacancy is around 5.4%–5.5%, with pricing up 3.2% year-over-year. Industrial assets maintain 6.7%–7% vacancies, and pricing is up 2.7%. Multifamily is stable with around 9% vacancy. The office sector remains challenged: values are down 24% from the peak, and vacancy rates hover around 20–23%, particularly in CBDs. However, some buyers see value in distressed assets.

Cap rates are compressing:

• Industrial: -30 bps;
• Retail: -24 bps;
• Multifamily: -17 bps;
• Office: -7 bps.

These numbers signal improved sentiment and strengthening fundamentals.

(Sources: MSCI Real Assets, NCREIF, CBRE Econometric Advisors, ULI Reports, RCA, Green Street Advisors)

IoT’s role in CRE recovery

Much of CRE’s resilience in 2025 is tied to smarter asset management. Internet of Things (IoT) technology is no longer optional – it’s critical. From energy efficiency to tenant satisfaction, connected buildings that apply IoT for smarter property management outperform their outdated counterparts. Smart sensors and systems now enable building managers to track energy usage in real time, automate lighting and HVAC systems, and reduce utility costs. IoT-based climate systems can adapt to occupancy patterns, cutting energy waste by up to 30%. That’s especially valuable in today’s cost-conscious environment.

Predictive maintenance is another major win. IoT-enabled monitoring detects wear and tear before it turns into equipment failure. This avoids costly emergency repairs and can reduce overall maintenance budgets by as much as 25%. For tenants, these upgrades matter. Occupants increasingly favor buildings that prioritize sustainability, automation, and health. Smart ventilation, air quality sensors, and real-time temperature control aren’t just perks – they’re part of the leasing decision.

Owners who have embraced IoT are seeing tangible returns. Vacancy rates are lower in tech-enabled buildings, tenant retention is higher, and as sustainability regulations tighten, these assets are ahead of the curve.

Is this a “great” market?

Comparing today’s conditions to historical “greatness” sets a high bar. The 1990s saw prolonged expansions. Post-war years delivered double-digit GDP growth. 2025’s projections don’t come close. But greatness is relative. In a post-2008 world, with slower global growth and structurally higher costs, 2.5% GDP growth looks more impressive than it once did. Today’s economic system doesn’t require 4% growth to feel healthy.

CRE is in a similar spot. While the office sector is still struggling, retail, industrial, and residential are all gaining ground. There’s a real movement and, more importantly – real strategy. Investors aren’t just chasing yield; they’re looking at long-term fundamentals, asset-level improvements, and digital transformation. That alone sets this recovery apart. Rather than waiting for broad economic winds to shift, asset owners are taking the lead – modernizing buildings, leveraging tech, and targeting high-demand sectors like data centers, logistics hubs, and urban residential.

Sector and regional divergence

One of the clearest trends in 2025 is divergence between property types and regions.

• The office market, particularly in downtown cores, continues to struggle. Companies haven’t returned to five-day in-office weeks, and hybrid work appears permanent. That has left millions of square feet underutilized. However, suburban office properties with flexible layouts and good transit access are seeing better traction.
• Retail has surprised many. Rather than declining further, it’s adapting. Neighborhood centers with essential services are thriving. E-commerce-resistant formats – like grocers, clinics, and fitness – have filled vacant big boxes. Even enclosed malls are seeing strategic repositioning, sometimes with residential components.
• Industrial remains a star. Supply chains have shifted toward regional hubs, and the demand for distribution centers, cold storage, and last-mile facilities remains strong. Cap rates are tightening, and institutional capital is still flowing into the sector.
• The multifamily is holding steady. Rising interest rates have made home-buying more expensive, pushing many households to remain renters. In high-growth cities, demand still exceeds supply, especially for mid-range and workforce housing.
• States like Texas, Florida, and Arizona benefit from population growth and business migration. Coastal cities are more mixed, with stronger fundamentals in the industrial and multifamily segments but persistent office challenges.

Beyond metrics: a shift in mentality

2025 isn’t just about recovery – it’s about repositioning. The winners in this CRE cycle are not necessarily the most prominent players but the most adaptable. Firms investing in data, automation, and tenant-centric design are pulling ahead. IoT has become part of that toolkit. In a market where operating margins are under pressure, insights into how a building performs in real time are a competitive edge. CRE is no longer just about location and square footage – it’s about how space functions. Leasing strategies are also evolving. Owners offer flexible layouts, plug-and-play tech infrastructure, and sustainable features aligning with tenant ESG goals. In this environment, occupancy is won not through discounting but through differentiation.

You may be interested in: Top 10 IoT projects in 2025: the future of smart innovation

Looking ahead: from good to better?

The overall picture for 2025 is one of moving forward but not fast. The economy is holding together, and CRE is showing traction. But calling this moment “great” would be premature. What’s encouraging is the shift in mindset. Owners, operators, and investors aren’t waiting for perfect conditions. They’re acting – refinancing portfolios, repositioning assets, and modernizing their offerings.

Technology, especially the centralized IoT approach, is playing a key role in this resilience. From predictive maintenance to energy optimization and tenant experience, it’s enabling a leaner, smarter, and more responsive built environment. That might not make 2025 a banner year in the history books, but it sets the stage. With the right strategies, the potential for sustained, meaningful growth is there – especially for those willing to rethink how real estate operates.

So, is it a great year? Not yet. But it might just be the start of one.