Key takeaway
After years of slow revenue growth, spending cuts, and shaky fundamentals, global commercial real estate may finally see a revival in 2025 — at least according to Deloitte’s 2025 CRE outlook report, which we are summarizing in this blog.
Commercial real estate has been hit hard by uncertainty. High interest rates, inflation, changing tenant behavior, and climate risks have forced CRE companies to protect their balance sheets and strengthen core operations. In fact, in recent years, most have played it safe instead of chasing new growth.
But the tide may finally be turning. According to Deloitte’s CRE outlook report for 2025, industry conditions could stabilize over the next 12 to 18 months and open a window for companies to take a more proactive stance. Here’s a summary of the key findings from their research.
Falling inflation and global economic growth may stabilize CRE
The future of commercial real estate will largely depend on where interest rates go.
The uneven economic recovery across regions will likely continue: Deloitte’s projections show faster GDP growth in India and Singapore for the rest of the year, while Mexico and Japan are expected to slow down. The US is set to experience a 1.3-point drop in GDP growth — in contrast, the UK and eurozone are expected to grow by 1.2 and 1.0 points, respectively. India will maintain strong growth but at a slower pace compared to 2024.
All this said, the outlook remains hopeful even with slower growth. Recession fears have mostly faded and inflation rates have dropped from 2023 peaks. Central banks are starting to ease monetary policies as well. The European Central Bank and the Bank of Canada cut rates in June followed by the Bank of England in August. The US Federal Reserve has also kept rates steady through mid-2024.
These rate cuts have lifted confidence in certain CRE segments. Many believe that easing monetary policies will boost market prospects in late 2024 and into 2025. But one rate cut won’t solve everything — refinancing risks remain, and capital for acquisitions won’t suddenly become cheap or easy to access.
Real estate optimism emerges amidst cautious outlook
After two challenging years of declining revenues, most respondents to Deloitte’s survey now predict growth — in fact, over 60% expect revenue to climb by more than 5%. Spending levels (particularly in data and technology) seem to be returning to pre-pandemic norms.
However, although rate hikes are slowing, the “higher-for-longer” environment continues to strain the sector. A large number of CRE mortgages — many of which were issued at lower initial rates — are set to mature soon. Refinancing these loans will come at a much steeper cost. Macroeconomic uncertainties such as cybersecurity threats, potential tax policy shifts (including the global minimum tax) and geopolitical events are also weighing on the market.
These challenges affect different regions in varying intensities. The US is facing a large volume of maturing loans while the Asia-Pacific region is dealing with a funding gap.
How can CRE investors position themselves for resilience against these threats? The Deloitte report recommends:
- Exploring alternative financing (such as private credit and other non-traditional capital sources) to help offset rising borrowing costs
- Focusing on long-term digital transformation efforts that improve core operations and cybersecurity
- Staying cautious and preparing for unexpected events that could shift market conditions
Capital deployment and M&A trends
The CRE market is now showing signs of stabilization after years of disruption. While property valuations are still declining, the pace has slowed and transaction activity is starting to pick up. Key trends from the survey certainly paint an upbeat picture:
- 68% of survey respondents expect CRE fundamentals to improve in 2025.
- 68% also believe that financing will be less expensive this year (a sharp contrast to last year’s expectations)
- 69% expect financing to become more accessible.
Global investment dollar volumes were down 36% year over year to $1.2 trillion in 2023, but M&A activities were surging. Europe led the way with a 56% increase through May 2024, followed by North America at 50% and the Asia Pacific region at 46%. More deals are likely to move forward, according to the report, as buyers and sellers reach a consensus on expectations and fair market values.
Industrial, manufacturing, multifamily CRE, and hotel/lodging properties continue to be high-growth segments along with digital economy CRE such as data centers and cell towers.
Domestic investments remain dominant but international markets like Germany, Canada, Mexico, India, and Australia are regaining attention. CRE investors also seem to be rebalancing their portfolios — they’re shifting toward next-generation assets including smart and green buildings.
Merger and acquisition activity seems to be rebounding, with many leaders planning to increase M&A efforts over the next 12 to 18 months. More CRE companies are acquiring new technology capabilities and scaling up their human resources. However, activity varies across sectors. In general, REITs and public companies are more aggressive in pursuing deals, while banks remain cautious about large-scale transactions.
To stay competitive in the context of these capital deployment and M&A trends, the Deloitte report recommends that CRE leaders:
- Focus on properties with strong supply-demand fundamentals to ride out market fluctuations
- Invest in technology to enhance efficiency and sustainability
Making properties climate-resilient while protecting viability
The rising frequency of extreme weather events — from storms to heatwaves and now wildfires — is forcing CRE investors to face the elephant in the room: climate change. Balancing climate resilience and financial performance is no longer optional for CRE players that want to thrive in the long term.
Investing in energy retrofits
The report recommends retrofitting existing buildings to cut carbon emissions, as this strategy seems to be more effective than redeveloping properties from scratch. Building Performance Standards (BPS), which set benchmarks for energy performance, are gaining traction all over the world.
‘Deep’ energy retrofits target at least a 50% boost in energy efficiency but currently account for less than 1% of buildings upgraded each year. Why? Because high upfront costs and operational disruptions continue to hinder progress. These types of energy retrofits require comprehensive building renovations (including high-efficiency HVAC systems and insulation) as well as renewable energy integration.
To meet net-zero goals by 2050, deep renovation rates need to rise from 1% to 3% globally — a tall order given the status quo. But encouragingly, 76% of survey respondents plan to implement deep energy retrofits within the next 12 to 18 months.
Governments are tightening regulations, too. Six states and 41 cities in the US have now committed to BPS policies, and the UK requires commercial properties to achieve a minimum Grade B energy rating by 2030 (non-compliance means facing penalties). Notably, an estimated two-thirds of UK office buildings fall below this threshold, which may create retrofit opportunities. In Asia Pacific, Europe, and North America, the anticipated adoption rates for deep retrofits are 80%, 78%, and 70%, respectively, driven by regulatory and investor pressure.
Sustainability beyond compliance
The business case for sustainability is growing stronger, but it’s still difficult for many CRE investors to strike that balance between short-term returns and long-term benefits. Currently, 36% of respondents prioritize sustainability initiatives that yield modest financial returns while complying with regulations. Only 22% focus on long-term value creation and consider sustainability a core part of their strategy.
Deloitte’s report estimates that global retrofitting efforts will likely require $3 trillion in investments. The problem is that there’s a shortage of innovative financing solutions to cater to this need. In fact, US REITs issued a lower volume of green bonds in the last two years because of rising interest rates. Survey participants recognize this challenge and cite financial constraints (followed by design limitations) as the biggest barrier to implementing deep retrofits.
All that said, there’s plenty of profitable opportunities in shifting from carbon-intensive “brown” assets to sustainable “green” assets — such as buying brown properties and retrofitting them with sustainability upgrades to create profitable exits.
Deloitte’s survey results show that 61% of global respondents expect hurdle rates (minimum acceptable rates of return) to improve in the next 12 to 18 months. Around 45% prioritize investing in climate risk management tools and digital twin technologies to predict and mitigate climate-related risks (such as flooding, heatwaves, and sea-level rise) and to optimize overall building operations.
Achieving net-zero emissions requires better technology, data collection, and risk management tools. Among respondents, 45% plan to strengthen their risk management capabilities while 41% intend to invest in digital twin technologies to model energy efficiency upgrades and accelerate net-zero efforts.
What can CRE investors do to achieve sustainability while protecting their building’s profitability? Here are the recommendations from Deloitte’s report:
- Embed sustainability across all business functions, from accounting to operations.
- Adjust investment hurdles to account for long-term benefits.
- Explore green bonds, government-backed loans, and other financing tools.
- Use carbon markets cautiously. Perform thorough due diligence on carbon credit projects.
- Link energy performance with underwriting to secure better loan terms.
- Use digital twin technologies to share data and plan retrofits.
Conclusion
Whether or not the CRE industry will truly reach full recovery depends mainly on what the geopolitical climate and interest rates will be over the next 12 to 18 months. However, there are signs of a turnaround — industry surveys reveal growing optimism about revenue growth and deal activity. The link between sustainable investments and profits is also clearer than ever. To capitalize on this optimism, CRE investors need to start shifting from defensive strategies to more aggressive and forward-thinking plans.
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