As we look toward 2025, the commercial real estate landscape stands at a pivotal turning point. With commercial property values down nationally 19 percent from their 2022 peak and the Federal Reserve’s first two rate cuts in four years — for a total of 75 basis points — the market is showing early signs of revival. This transition period presents both hurdles and prospects for small- and medium-sized businesses (SMBs). Understanding the key market dynamics for the year ahead will be crucial for making informed decisions. 

Six market forces shaping 2025

1. Capitalize on market recovery momentum
   The commercial real estate market is beginning to show signs of life after prolonged uncertainty. With significant dry powder ($382 billion globally according to Cushman & Wakefield) waiting to be deployed and renewed investor interest following recent rate adjustments, 2025 could mark the beginning of the next growth cycle. For SMBs, this means potential opportunities in both leasing and investment, particularly as property valuations begin to stabilize and transaction volumes increase.

2. Navigate the evolution of office space
   

   The office sector is undergoing a fundamental transformation that will impact businesses of all sizes. With vacancy rates nationally hovering around 12 percent, according to CRE Daily, companies are reimagining their workspace needs. The shift is moving toward smaller, more flexible spaces prioritizing collaboration and modern amenities. For SMBs, this presents an opportunity to secure higher-quality space at more favorable terms, particularly as landlords become more accommodating to tenant needs and building improvements.

3. Address rising insurance and construction costs
   Insurance premiums have dramatically increased across all property types, with some sectors experiencing double-digit annual growth rates. Construction costs remain approximately 40 percent higher across all asset types than pre-pandemic levels, according to Associated Builders and Contractors. For SMBs, this means carefully evaluating insurance coverage options and considering creative approaches to renovation and build-out projects. Planning for these increased costs should be a vital component of any real estate strategy.
4. Navigate the debt and refinancing landscape
   The commercial real estate market faces a significant refinancing challenge in the years ahead. With approximately $600 billion in loans maturing annually through 2028, totaling $2.3 trillion, according to Bloomberg, the “wall of maturity” demands immediate attention. Regional banks, which hold about $2.7 trillion in assets, are adopting more conservative lending practices amid regulatory scrutiny. For SMBs, understanding this shifting lending environment and planning ahead for refinancing needs will be crucial for financial stability. 
5. Leverage technology for competitive advantage
   The integration of artificial intelligence (AI) and property technology (PropTech) is becoming increasingly critical in real estate operations. Technology can provide significant operational benefits, from optimizing space utilization to improving energy efficiency. SMBs should focus on implementing practical technology solutions to improve decision-making and operational efficiency without requiring significant capital outlays.
6. Prepare for sustainability requirements
   Environmental considerations are moving from “nice-to-have” to “must-have” in commercial real estate. The expansion of sustainable investment practices and growing regulatory requirements around carbon footprints mean businesses need to prioritize sustainability in their real estate decisions. Energy efficiency tax credits through the Inflation Reduction Act present opportunities for SMBs to make sustainable improvements while potentially reducing costs.

Looking ahead 

While the environment is unsettled and evolving, particularly with rising costs and market uncertainty, emerging opportunities suggest that 2025 could mark the beginning of a new chapter in commercial real estate. For businesses navigating these changes, the key will be maintaining flexibility while carefully evaluating opportunities aligning with both immediate needs and long-term objectives. Whether you’re considering new space, renovating existing facilities or making strategic investments, understanding these market dynamics will help inform better real estate decisions in the year ahead. 

Maximize your commercial real estate strategy with BPM

BPM’s Real Estate Industry Group offers comprehensive Assurance, Advisory and Tax Services. Our team brings deep industry experience — including professionals who have directly managed real estate companies and portfolios — enabling us to provide insights beyond traditional services. Whether you’re managing corporate real estate, investment portfolios, development projects or private equity investments, we can help you navigate entity structuring, acquisition modeling, tax compliance and financial reporting while bringing peace of mind to your operations. To discuss how we can support your real estate priorities and help position your business for success in 2025 and beyond, contact us.