From Interest Rates to Risk Mitigation: Trends CRE Leaders Need to Watch in 2025

The office market continues to evolve as companies adapt to economic pressures, shifting workforce dynamics, and changing employee preferences. After a challenging few years, signs of recovery are emerging, but the path forward remains uncertain. This article explores five key trends shaping the office market in 2025 and offers insights for leaders looking to stay competitive in this evolving landscape.

Office Market Trends to Watch

Interest Rates:

Despite interest rates falling in the second half of 2024 and the office market showing signs of life, the prospect for refinancing in 2025 remains grim. Morgan Stanley Capital International has estimated that 30 percent of maturing office loans in 2025 are worth less than the debt secured against them. Occupiers will need to perform due diligence on their portfolio and when in the market for new space.

Flight to Quality:

Amenity-rich office buildings are outperforming older spaces, with tenants focusing on newly delivered and recently renovated buildings with superior access/public transportation as occupiers look to entice workers to the office. Older Class A and B buildings are struggling to compete and spending on capital improvements for functionally obsolete buildings is challenging to financially pencil out.

Office to Residential Conversions:

Office space is coming off the market as conversions are picking up speed, particularly for multi-family use. This movement will be advantageous for urban office centers as vibrant downtowns are beneficial for drawing more people and events.

It’s the Economy:

Return-to-office mandates have largely been baked into most tenants’ occupancy plans, with focus shifting on how internal employee growth count will impact future space plans rather than managing the existing workforce. Despite an overall healthy job market, office-occupancy jobs have trended lower in the past year. In particular, the tech industry has trimmed employment. Meanwhile, sectors such as healthcare, life sciences, and professional services are experiencing growth, potentially driving demand for specialized office spaces tailored to their needs.

Risk Mitigation:

The US has experienced several natural disasters in the past year. With hurricanes impacting both coastal communities and metros hundreds of miles inland, historic droughts, extreme temperatures, and the ongoing devastation from wildfires, occupiers need to be intentional thinking about their portfolio locations and improve how they track and protect their workforce.

As we head into 2025, office real estate leaders face both challenges and opportunities. The days of blanket return-to-office mandates are largely behind us, but the focus now shifts toward job growth, workplace quality, and portfolio risk management. Occupiers will prioritize high-quality, amenity-rich spaces that support employee engagement, while older and functionally obsolete buildings will continue to struggle. Additionally, the rising trend of office-to-residential conversions offers a glimpse into the future of adaptive reuse. Navigating this evolving market requires careful planning, an understanding of shifting tenant demands, and proactive risk management strategies. By staying ahead of these trends, CRE leaders can better position their portfolios for long-term success.

Want to learn more about optimizing your office portfolio in 2025? Contact our team of tenant advisors for  a personalized strategy. 

By Greg Schementi and Tricia Trester