Commercial
real estate is no stranger to disruption. Over the years, we’ve seen tech booms,
financial crashes, pandemic-induced pivots, and policy shifts—each shaping how,
where, and why properties are bought, sold, and leased. Now,
as we have eclipsed
two months of 2025, the question is: What’s next? What
trends, policies, or economic shifts will send ripples—or shockwaves—through
the commercial real estate industry this year? While no one has a crystal ball,
here are the key forces that could redefine commercial real estate as we know
it. 1. The Interest Rate Wild Card After
a rollercoaster ride of rate hikes in 2023 and 2024, all eyes are on the
Federal Reserve. If interest rates come down, expect renewed investment
activity as buyers jump back into the market, particularly in asset classes
like multifamily,
retail, and industrial. On
the flip side, if rates remain elevated, property values could continue their
adjustment downward, forcing sellers to get realistic about pricing. Distressed
assets may hit the market at more aggressive discounts, creating opportunities
for well-capitalized investors to scoop up deals. Either
way, financing
costs will remain a major player in 2025—shaping everything from new
development to refinancing strategies. 2. The Great Office Reset Continues Office
space is still in a state of flux. While some markets have rebounded, others
are saddled with record-high vacancy rates. The remote
work debate is far from settled, and companies are still rightsizing their
footprints. The
trend to watch in 2025? Adaptive reuse. Cities
like New York, San Francisco, and Chicago are actively pushing for
office-to-residential conversions, and the success of these projects could pave
the way for similar initiatives nationwide. If office landlords can’t lease
their space, many will be forced to sell, redevelop, or repurpose—and that
shift could redefine entire downtowns. 3. The Rise of AI-Driven Commercial
Real Estate Artificial
intelligence is quickly moving from novelty to necessity in commercial real
estate. By 2025, expect AI to play a bigger role in: ·Market forecasting – Predicting tenant demand, property values, and
investment trends. ·Automated transactions – AI-driven platforms could streamline leasing and
deal negotiations. ·Property management – Smart buildings will rely on AI to reduce energy costsand optimize occupancy. The
biggest disruptor? AI-powered brokerage tools. If a
machine can analyze a property’s value, predict tenant turnover, and match
buyers with sellers in seconds—where does that leave traditional brokers? The
smart ones will adapt by using AI as a tool rather than seeing it as
competition. 4. Industrial’s Growth
Slows—Especially in Class A Logistics For
years, industrial real estate was the darling of commercial property
investment, fueled by e-commerce expansion,
supply chain shifts, and reshoring efforts. But as we move into 2025,
cracks are beginning to show—especially in the Class
A logistics sector. After
years of feverish development, many major markets are now oversupplied
with large, high-end distribution centers, leading to rising vacancy
rates and flattening rents. Markets like Dallas, Phoenix,
and Inland Empire have seen an influx of new construction
deliveries at a time when demand from major tenants—especially e-commerce
giants—has cooled. This
isn’t a collapse, but it is a correction. Leasing activity is
still happening, but at a slower pace, and landlords are being
forced to offer
concessions or lower rentsto attract tenants. Investors
who banked on continued breakneck absorption rates are now reassessing their
strategies, particularly in overbuilt logistics corridors. That
said, not
all industrial real estate is slowing. Smaller,
last-mile distribution centers in dense urban areas
remain in demand as retailers optimize delivery networks. Similarly, sectors
like cold
storage and specialty manufacturing continueto see steady interest. For
industrial owners, 2025 will be about differentiation—Class A landlords
may need to get creative with tenant incentives, while niche industrial assets
will likely hold their value better in a cooling market. 5. Retail’s Reinvention Continues The
so-called retail
apocalypse never
fully materialized, but the sector is definitely evolving. In 2025, successful
retail centers will be those that blend experience,
entertainment, and essential services. Expect
to see: ·More medical and wellness tenants filling retail spaces. ·A continued boom in grocery-anchored centers, which have proven resilient. ·The rise of “click-to-brick” showrooms, where online brands open physical stores to engage
customers. Retail
landlords who embrace tenant diversity
and mixed-use elements will stay ahead of the curve, while those
clinging to outdated formats may struggle. Final Thoughts If
history has taught us anything, it’s that commercial real estate never stands
still. Every market cycle, every technological advance, and every policy shift
brings new challenges—and new opportunities. As
we’re into 2025, the industry’s next big disruptor could come from any
direction—interest rates, AI, adaptive reuse, or even a policy shift we haven’t
seen coming yet. The winners will be those who stay
ahead of the trends, adapt quickly, and embrace change as the only constant. So,
buckle up. The next CRE transformation is already underway. Allen C. Buchanan, SIOR, is a principal with Lee & Associates Commercial Real Estate Services
in Orange. He can be reached at abuchanan@lee-associates.com or 714.564.7104. His website is allencbuchanan.blogspot.com.
As
I pen this column, we celebrate Presidents’ Day—a cool winter holiday
originally meant to honor Washington and Lincoln’s birthdays but now mostly a
day off from work and school. When I was a kid, February was a rapid-fire month
of celebrations—Lincoln’s birthday on the 12th, Valentine’s Day on the 14th,
and Washington’s birthday on the 22nd. Over time, two of these events have
merged into one, but this year, a well-placed Friday-to-Monday stretch created
a four-day weekend for SoCal school kids. Reflecting
on presidential legacies got me thinking: beyond politics, what decisions have
truly shaped the commercial real estate landscape? From massive land
acquisitions to economic policies that influenced leasing, investing, and
development, presidential decisions have had a lasting impact on how, where,
and why commercial real estate thrives. So,
in honor of Presidents’ Day, here are ten of the most
influential moves that changed our industry forever. 1.
The Louisiana Purchase (1803) With
one signature, Thomas Jefferson doubled the size of the United States, opening
vast territories to expansion. This set the stage for land speculation, western
development, and the eventual rise of cities that became hubs for commerce and
industry. Imagine what CRE looked like before places like St. Louis, Denver,
and New Orleans became economic powerhouses. 2.
The Panama Canal (Completed in 1914, championed by Theodore Roosevelt) By
cutting transit time between the Atlantic and Pacific Oceans, the Panama Canal
revolutionized global trade and transformed U.S. port cities into industrial
and logistics hubs. Today’s industrial real estate boom—think massive
distribution centers near ports—owes much to this early infrastructure
investment. 3.
The Smoot-Hawley Tariff Act (1930) Passed
under President Hoover, this protectionist tariff worsened the Great Depression
by stifling trade. The ripple effects devastated commercial real estate, as
businesses closed, industrial demand plummeted, and office vacancies soared. A
lesson learned: real estate is highly sensitive to trade policy and economic
shifts. 4.
The Small Business Administration (1953, Eisenhower) By
providing federally backed loans to small businesses, the SBA made it easier
for entrepreneurs to purchase office and industrial spaces. Countless shopping
centers, strip malls, and local office buildings have been filled by
SBA-assisted businesses over the years, fueling demand for small-bay
industrial, retail, and professional space. 5.
Nixon Opens China (1972) When
Richard Nixon reestablished diplomatic and trade relations with China, the move
triggered decades of economic transformation. Factories in the U.S. closed as
manufacturing shifted overseas, reshaping industrial real estate. Warehouse and
logistics space replaced manufacturing plants, and West Coast port cities like
Los Angeles, Long Beach, and Seattle became critical import hubs. 6.
Reagan’s 1986 Tax Reform Act This
landmark tax overhaul eliminated many real estate tax shelters and changed
depreciation rules, altering how investors approached CRE. The shift led to a
market downturn in the late ’80s, followed by a new focus on long-term,
sustainable investing strategies. Investors learned that tax policy alone
shouldn’t dictate real estate decisions. 7.
Enterprise Zones (1980s-Present) Various
presidents have championed enterprise zones—designated areas offering tax
breaks and incentives to encourage business investment in struggling regions.
These policies, from Reagan’s initiatives to the Opportunity Zones under Trump,
have fueled development in underutilized areas, sparking growth in commercial
real estate. 8.
The Affordable Care Act (2010, Obama) While
primarily a healthcare law, the ACA’s impact on commercial real estate was
profound. The expansion of medical facilities, urgent care centers, and
specialty clinics surged, increasing demand for medical office space.
Meanwhile, some businesses downsized their footprints in response to new
insurance mandates. When selling real estate assets, a 3.8% tax was imposed as
well. 9.
Trump’s Tariffs (2018-Present) Trade
wars with China and other nations led to increased manufacturing costs and
supply chain disruptions. However, these policies also triggered a renewed push
for domestic production, fueling demand for industrial space and reshoring
manufacturing facilities—a trend that continues today. 10.
COVID Lockdowns (2020, Trump & Biden) Perhaps
no recent event has reshaped commercial real estate more than the COVID-19
lockdowns. Office vacancies skyrocketed as remote work took hold, retail faced
massive upheavals, and industrial real estate boomed with e-commerce demand.
The long-term effects are still unfolding, but one thing is certain—CRE will
never look the same again. Final
Thoughts Presidents’
decisions don’t just influence policy—they reshape the very fabric of our
cities, our businesses, and the commercial real estate from which we operate.
From land acquisitions to tax laws to trade policies, every move in Washington
sends ripples through our industry. Looking
ahead, the question remains: what policy decisions today will shape the next
era of commercial real estate? If history is any guide, the effects will be
felt for decades to come. Allen C. Buchanan, SIOR, is a principal with Lee & Associates Commercial Real Estate Services
in Orange. He can be reached at abuchanan@lee-associates.com or 714.564.7104. His website is allencbuchanan.blogspot.com.
If
you’ve driven through the Inland Empire lately, you’ve likely noticed the
seemingly endless stretch of massive warehouses sprouting up like weeds after a
rainy season. These aren’t your grandfather’s industrial buildings—these are
Class A logistics facilities, the gold standard of modern warehousing. But
what exactly defines a Class A logistics building, and why has Southern
California been ground zero for their development? What
Makes a Logistics Building “Class A”? In
commercial real estate, “Class A” is the best of the best. For logistics
buildings, that means high ceilings (32 to 40 feet clear height), wide
column spacing, expansive truck courts, and an abundance of dock doors.
These facilities are designed for maximum efficiency, helping retailers and
logistics companies move goods as quickly as possible. Modern
Class A warehouses also feature state-of-the-art technology, including
automation, robotics, and advanced climate control for specialized storage
needs. Sustainability
has also become a priority, with many new projects incorporating LEED
certification, solar panels, and EV infrastructure to meet California’s
stringent environmental regulations. Why
Has Southern California Been a Logistics Boomtown? Southern
California has long been a logistics hub, but in recent years, industrial
development has reached unprecedented levels, particularly in the Inland
Empire. The reasons have been as clear as a truck’s route on a traffic-free
I-10 (if only that ever existed). First
and foremost, the Ports of Los Angeles and Long Beach handle nearly 40%
of U.S. imports, making the region a critical entry point for goods from
Asia. Companies have historically needed distribution centers close to these
ports to move inventory quickly, reducing supply chain costs and delivery
times. The
rise of e-commerce further accelerated demand. Consumers now expect next-day
or even same-day delivery, requiring strategically located fulfillment
centers. Major players like Amazon, Walmart, and FedEx aggressively
expanded their logistics footprint to keep pace. At
its peak, the Inland Empire was a developer’s dream—land was more
affordable than in Los Angeles or Orange County, and proximity to major
transportation corridors made it an ideal distribution hub. Vacancy rates were
historically low, and new warehouses were often leased before construction was
even completed. A
Market Shift: From Undersupply to Oversupply But
what was once a perfect storm of demand has now flipped on its head.
Since mid-2022, the market has cooled significantly, and supply has now outpaced
demand. Massive
speculative development, combined with a post-pandemic slowdown in e-commerce
growth and shifting inventory strategies, has led to a glut of new
industrial inventory—especially in the Inland Empire. The frenzied leasing
activity of 2020-2022 has slowed, leaving many newly constructed warehouses
sitting empty. The
impact? Rents have begun to soften, and landlords are increasingly offering
concessions—free rent, tenant improvement allowances, and flexible lease
terms—to spur absorption. It’s a stark contrast to just a couple of years
ago when landlords held all the leverage. The
Investment appetite Adjusts Institutional
investors, once bullish on Southern California’s industrial sector, are now treading
more cautiously. Rising interest rates have further complicated the
picture, making development financing more expensive and prompting some
developers to hit pause on new projects. Still,
despite the current correction, Southern California remains one of the most
critical logistics markets in the world. As long as goods continue flowing
through its ports, the region will be a key player in global trade. The
question is whether landlords, developers, and investors can adjust to a new
reality—one where growth isn’t limitless, and strategic leasing efforts will be
just as important as new construction. The
Road Ahead So,
what’s next? The market is recalibrating, and 2024 will be a year of
absorption rather than expansion. Developers and investors who were riding
the wave of relentless demand will now need to focus on filling vacancies,
managing rental expectations, and offering incentives to attract tenants. For
communities, that means fewer new projects breaking ground—but also a more
balanced industrial market that could lead to more sustainable long-term
growth. One
thing’s for sure—those massive warehouses aren’t going anywhere. But for the
first time in years, some of them might be sitting empty a little longer than
expected.
A major shift has arrived in California real estate, and if
you’re in the business—whether residential or commercial—you need to pay
attention. As
of January 1, 2025, Assembly Bill 2992 (AB 2992) requires that real estate
agents representing buyers must enter into a written buyer-broker
representation agreement with their clients. While this practice has long
been common in residential real estate, the fact that it now extends to
commercial transactions adds a new layer of formality—and potential friction—to
the way deals get done. What’s in the Law? For
starters, this isn’t just a suggested best practice. Under AB 2992, written
agreements are now mandatory when representing buyers. No more handshake
deals or loosely defined relationships. Brokers must present and execute a buyer-broker
representation agreement with their client before submitting an offer on
a property. These
agreements must include:
The broker’s
compensation terms
A breakdown of the services
the broker will provide
The conditions under
which the broker gets paid
The duration of the
agreement and how it can be terminated
For
individual buyers, these agreements cannot exceed three months—and
automatic renewals are prohibited. However, if the buyer is a
corporation, LLC, or partnership, there’s no limit on duration. In
addition, before signing, brokers must provide buyers with a written agency
disclosure form, ensuring they fully understand the nature of the
representation and the broker’s role in the transaction. What This Means for
Commercial Real Estate While
commercial brokers are no strangers to formal agreements, this law forces a
more structured and transparentapproach to buyer representation. In some
ways, this is a good thing—establishing clear expectations up front can reduce
misunderstandings later. But in an industry where relationships and flexibility
are key, some see this as unnecessary government interference. Brokers
will now need to:
Lock in client
commitments earlier.
Those informal “let’s see what’s out there” conversations may now need to
be backed by signed paperwork sooner than some clients expect.
Clearly define
compensation terms.
No more vague or open-ended agreements. Brokers must spell out exactly how
and when they will be paid.
Educate clients about
the new rules.
Some buyers, especially those used to the old way of doing things, may
push back on signing agreements upfront. Brokers will need to walk them
through why this is now required.
The Big Picture California
has been moving toward more consumer protection in real estate for
years, and AB 2992 is just the latest step. While it might create short-term
headaches for brokers who are used to looser arrangements, it ultimately aims
to bring more clarity and accountability to buyer-broker relationships. Whether
this shift strengthens the industry or just adds another layer of red tape
remains to be seen. But one thing is certain—if you’re working with buyers in
California real estate, you’d better get those agreements in writing.
