2B — January 2025 — 2025 Forecast — M id A tlantic Real Estate Journal
www.marej.com
2025 F orecast Zimmel Associates highlights resilient sectors in a changing market Navigating the 2025 commercial real estate market: Trends, challenges, and growth sectors
he commercial real estate market in 2025 offers both challenges and opportunities as shifting consumer habits and eco- nomic pressures reshape the industry. Rising costs for es- sentials like groceries, fuel, and dining are continuing to strain household budgets, impacting both consumers and businesses. As a result, property owners, developers, and investors are reassess- ing their strategies for the year ahead. After years of rapid ware- house construction driven by e-commerce, demand has slowed, resulting in an over- supply of big-box spaces, high- er vacancy rates, and rent reductions of 10% to 15% in some areas. Developers are now rethinking their plans, redesigning or scaling down spaces to better align with market needs. Similarly, office and retail spaces are undergo- ing significant changes. The rise of hybrid work has reduced demand for traditional office layouts, encouraging landlords to create open, flexible envi - ronments that meet modern needs. Meanwhile, the decline of standalone stores is being offset by the growth of mixed- use developments that blend shopping, dining, and residen- tial spaces, offering visitors a more engaging experience. Rising interest rates add another layer of complex- ity. After years of histori- cally low rates, the current range of 6.5% to 7.5% is creating challenges for fi- nancial projections. Projects initially planned with lower borrowing costs now face difficulties meeting finan- cial expectations, prompting some developers to pause or rethink their strategies in this higher-cost environment. Despite these challenges, there are positive trends in the market. The healthcare and pharmaceutical sectors continue to drive demand for specialized facilities, reflecting broader trends in healthcare investment and the growing need for medi- cal research and patient care. Additionally, New Jersey’s cannabis industry presents growth potential in 2025. While the anticipated boom in cannabis manufacturing has not materialized as ex- pected—few companies have T
established vertical manu- facturing operations—the dispensary market has ex- panded significantly. Dispen - saries are opening steadily, signaling ongoing demand and investment opportunities. Looking ahead, there’s hope that interest rates may stabilize. Even a slight drop to 5.75% or 6% could allevi- ate pressures and help de- velopers adjust their strate- gies. Overall, 2025 is likely to reflect the latter half of 2024, with rents remaining flat or slightly declining due to increased vacancy rates. Compared to 2022 and 2023, availability has surged, par- ticularly for larger proper- ties. For example, a 25,000 s/f building, which was rare two years ago, now offers 8 to 10 options. This surplus, especially for properties over 100,000 s/f, will take time to absorb, keeping the market stable but subdued. While the economy may feel “just OK,” understand- ing market trends and focus- ing on resilient sectors will be key in 2025. By staying proactive, adaptable, and focused on long-term goals, businesses can navigate challenges, mitigate risks, and position themselves for sustained success. MAREJ
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