2025 Q4 Real Estate Chartbook

2025 Review

• GDP growth slowed to 1.4% (annualized) in Q4 and was 2.2% for 2025. Business investment, led by AI firms, was an out-sized component of GDP growth.
• Employment growth was only 180K in 2025, with job losses of 50K in Q4. 1.5M were added in 2024.
• Unemployment ticked up to 4.4% at the end of the year.
• Annual headline CPI inflation decelerated to 2.7% and core inflation moderated to 2.6%.
• The Federal Reserve cut rates twice in Q4 to 3.5-3.75% but held them steady in January.
• The 10-Year UST yield fell 16 bps QoQ to 4.1% in Q4.

2025 Expectations

• Moderate GDP growth (2-2.5%) is forecast through 2028 and a recession is unlikely.
• Inflation will continue decelerating and stabilize near 2-2.5%. Goods prices remain vulnerable to tariffs.
• Slow job growth to persist as population growth slows and immigration remains low.
• Short-term interest rates may fall further with Fed Chair nominee, Kevin Warsh, signaling a more dovish stance. Long-term rates are likely range-bound (4-4.5%).
• Downside risks include geopolitical concerns, volatile governance (e.g., Federal Reserve interference, immigration enforcement), and an AI-led stock market correction.
• Upside scenarios include consumer spending boosts from tax refunds, stronger capital investments, and regulatory pullback.

 

Real Estate Fundamentals

• Real estate fundamentals have continued to soften as the large apartment and industrial pipelines deliver:
  • Multifamily – Strong annual absorption (480K units) was eclipsed by higher completions (520K units), pushing stabilized vacancy to 7% and slowing rent growth. Fundamentals will remain challenged in 2026 but should improve as new supply ebbs.
  • Office – Minimal net absorption pushed vacancies up and annual asking rent growth was low at 1.2%. Despite overall weak fundamentals, premium offices in top submarkets should outperform.
  • Neighborhood Retail – Vacancy rose slightly but remained below its long-term average and rent growth remained healthy. Limited new supply should support fundamentals in the coming years.
  • Industrial – Annual completions (280M SF) exceeded net absorption (120M SF) in 2025, lifting vacancies and slowing rent growth. Fundamentals are projected to soften further through 2026 before improving longer term.
• Annual transaction volumes totaled $520B, up 24% from 2024. Transaction volumes were up for all four major property types.