Hi All - Happy Saturday. It’s the last day of the month, which means it’s time for the Last Cast Letter.

I hope everyone had a wonderful Thanksgiving with their family and friends. You may have your feet kicked up while you’re watching a little college football. Hopefully, this is an interesting read between each down.

Today I want to dive into what’s hot, what’s not, and what might be worth a closer look regarding 2025’s real estate landscape. PwC and the Urban Land Institute just released their latest "Emerging Trends in Real Estate®" report, which is a great read.

The only thing is that it’s 138 pages long. Chances are you don’t have time for that, so we’ve aggregated some of the more interesting information below.

This report highlights where the industry is headed, what’s causing the market to shift, and which assets are worth our attention.

Rate Relief: A New Cycle Begins?

First things first — interest rates.

The Fed has finally started to ease off the rate hikes, a welcome relief for commercial real estate (CRE) folks who’ve been on a wild ride.

With rates coming down, we might be on the edge of a new expansionary phase. Translation? The cost of borrowing should become a little less painful, making it easier to finance new deals or refinance existing ones.

This shift is essential because lower rates don’t just impact our financing directly; they boost the confidence of buyers and sellers.

According to the report, industry optimism is climbing, with 65% of firms expecting a “good” or “excellent” year for profits—up from last year’s dismal 41%.

While we’re not back to those golden pre-pandemic returns, the lower rate environment might bring new life to the market.

For investors, it’s the equivalent of being handed a slight tailwind after running into a headwind for the last two years.

Tenant’s Market: New Supply Means More Choices

Now, let’s talk supply.

In many markets, tenants are actually calling the shots thanks to a wave of new construction. The pandemic made everyone rethink their space needs, and that’s left us with more vacancies in some sectors than we’d like.

Think of it as a “Building Boom, Tenant Boon”—vacancies are up, so tenants can be a little picky. They’re pushing for lower rents in some cases, or choosing to upgrade to brand-new buildings.

This isn’t necessarily bad news for investors if we’re strategic; it just means we need to pay attention to which properties are getting that “flight to quality” treatment and which might need a facelift (or maybe a whole new lease on life).

The office market, for example, is a tale of two worlds. While older, tired office buildings are struggling, newer, high-quality spaces are luring in tenants who want a place their employees will actually show up to.

For investors, this bifurcation means choosing your assets wisely. In 2025, the market will reward flexibility and modern amenities. It’s all about positioning and understanding tenant demand.

PwC’s Best Bets for 2025: Purpose-built rental housing, Industrial, & Niche Assets (Data Centers, Student Housing, etc.)

Every asset class has its day in the sun, and industrial real estate has been basking in it since e-commerce took over.

But even the sunniest sector can have a few clouds—thanks to high levels of new supply, vacancy rates in industrial real estate are creeping up. If we’re looking at industrial, it’s smart to target assets with a “smart growth” angle, properties that are in high-demand locations with modern features.

Tenants are picky here too, and they’re not just looking for a big empty box; they want high ceilings, energy efficiency, and the right amenities for their employees.

Data centers, though? They’re on fire. These properties are running on two things: the rise of AI and an intense need for power.

There’s not enough capacity to meet demand, and not every site can handle the infrastructure needed for these energy-guzzling facilities.

Unlike many sectors, data centers are insulated from typical real estate cycles, so this might be one of the safest bets out there right now.

On the multifamily front, we’re in a bit of a Goldilocks situation: some markets are a bit too hot, some a bit too cold. Oversupply in some of the Sunbelt cities means tenants have more options, which is keeping rents from spiking.

However, the big picture shows that affordable housing is still in short supply, and the new construction pipeline is slowing.

So while we might see some softening, multifamily remains a solid bet in the long term—especially if we target cities with strong population growth and employment bases.

PwC also notes that “niche assets” like student housing, cold storage, and select areas of senior housing could do well next year. “This category includes a variety of specialized property types that cater to specific market segments or needs and are less correlated to other real estate sectors,” the report’s authors write.

Migration, Climate, and Where People Actually Want to Live

Here’s where things get interesting: migration patterns are shifting, and climate is no small part of the story.

The Sunbelt migration boom is cooling a bit, with people moving into the “surban” areas—think suburban but with a dash of urban amenities.

We’re seeing demand for mixed-use communities that let people work from home and still have a vibrant local scene.

But climate resilience is increasingly on buyers’ and renters’ minds, not just ours. Many popular areas are grappling with climate risks—from hurricanes to wildfires to extreme cold snaps (yes, even in warm places like Texas).

Insurance costs are climbing, and in some high-risk areas, it’s nearly impossible to get private coverage. If we’re looking at new markets, it’s wise to consider areas that are less prone to these risks or properties that have been hardened to withstand them.

Properties in climate-resilient locations could be a competitive advantage in the years ahead.

The Housing Affordability Conundrum

You can’t talk about real estate in 2025 without addressing the housing affordability crisis. Home prices remain high, and mortgage rates—although coming down—are still far from the bargains we saw a few years back.

The result? More people are sticking to renting, either by choice or necessity, which keeps multifamily attractive.

Supply is where the challenge lies. There’s just not enough affordable housing stock, and while the political spotlight is shining on it, real solutions remain elusive.

If you’re an investor with a long horizon, this could mean an opportunity in rental properties—particularly in affordable, workforce housing where demand is consistently strong.

We may not be solving the crisis, but we can certainly position ourselves to meet demand where the market needs it most.

Closing Thoughts: What’s Next?

So, what does all this mean if you’re considering investing in real estate next year? 2025 is shaping up to be a year of cautious optimism.

With interest rates finally giving us some breathing room, tenant demand bouncing back in certain sectors, and strategic opportunities in areas like data centers and multifamily, there’s potential to be tapped—if we’re selective.

The smart play? Focus on high-quality assets, pay attention to tenant demand, and stay flexible. We’re in an era where resilience, flexibility, and a little extra thought on climate impact could set your investments apart.

As always, if you’re interested in investing alongside us, fill out the form below.

— Brooks