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The commercial property sector is booming in the U.S but it’s also going bust at the same time. That’s the strange situation we have in the market right now as it bifurcates along sectoral lines in ways that simply haven’t been seen before.
Commercial office projects are experiencing high vacancy rates while warehouse contractors can’t put up new buildings fast enough. It’s a strange situation, but one that was almost predictable during the pandemic.
During 2025, therefore, we can say there are two realities in the U.S. commercial real estate sector. There’s online retail businesses fuelling massive demand for inventory-related projects, including warehousing, infrastructure, and out-of-town retail units. Then, on the other side, there is the persistent office distress as workers make less use of gleaming downtown skyscrapers.
“The challenges and push-pull in the sector is truly remarkable,” explains financing company PBR Capital Partners. “What we’re seeing in 2025 was predictable in 2020, but few commentators imagined that the disruption would last this long.”
Economic tailwinds
Economic tailwinds have essentially kept the struggling elements of the U.S. commercial real estate sector alive. Offices are surviving in an environment where interest rates are just 3.75-4.00% (as of late 2025). And spending by the treasury means that private sector capitalization is higher than it has been for a while, just as banks increase lending.
However, uncertainties abound. The market fears debt and the ability of construction labor pools to keep pace with the requirements in other parts of the commercial real estate market. This tension is putting the brakes on some projects.
Overall, the outlook is optimistic for the remainder of 2025 and the first part of 2026, but that situation could change quickly. Some investors are pivoting to different types of assets, but others are remaining put.
Spotlight on winners and losers
In the industrial and logistics sector, vacancy rates are increasing slightly. However, ongoing demand by ecommerce brands for logistics services is still pushing up demand for modern warehouses and logistics hubs. Third-party logistics (3PL) providers now comprise more than 40% of the market as a whole, with shorter-term leasing options taking up the remaining three fifths of the market. For retailers, this situation is ideal because it gives them more room to negotiate on price. However, it could signal trouble if the situation continues to decline.
In the retail segment as well, some vacancies are below 5%, which is exceptional. Surging demand across the sunbelt means that many more of these outlets are now currently in use.
Drilling down to the micro level, this means that local tenants with flexible spaces are benefiting the most. However, the weakness is in big-box stores, thanks to issues in the housing market.
Finally, there are emerging stars, like datacenters, which are fast becoming commercial bona fide real estate categories in their own right. Many have vacancies of less than 8.1% and can accommodate the technological changes coming down the pike.
“The interest in credit from data center-related companies that want to expand their operations is significant,” explains PBR Capital Partners. “More brands are looking to get into this sector, especially with the growth of cloud tools and AI. Now that that genie is out of the bottle, it’s unlikely it will ever go back in.”
Challenges ahead
Of course, there are challenges for the commercial real estate sector as a whole in the U.S. looking ahead. These problems could derail some of the momentum we’ve seen.
Rising cap rates are one problem. These will likely hit developers and businesses engaging in construction projects hard. Someone along the chain is eventually going to have to pick up the tab.
Global instability is another issue that developers need to watch. Small changes in the international situation could have profound implications for everyone involved. Natural disasters, cybersecurity attacks and climate risk could all spell the end of the current rally, forcing a change in regulations and consumer behavior.
Another significant challenge looking forward is the sheer level of demand that AI is going to increase. Existing property owners may have to retrofit their datacenters to accommodate sustainability requirements or heat output to meet tenant requirements. These costs on a square-foot basis are likely to be significantly higher for smaller owners and tenants than large ones that can absorb costs.
How businesses can thrive
“As lenders, we’re always asking how businesses can thrive in changing environments like this,” explains PBR Capital Partners. “Companies can take advantage of the changing landscape, but it requires having the right approach and flexibility.”
For many companies, this will mean taking advantage of flexible lease arrangements. These work best in high-growth sectors, including industrials. However, they can be found in different settings.
For some, it may be possible to negotiate abatements at lease renewals. These reduce costs significantly in exchange for long-term contractual agreements.
For property owners, the best approach might be to invest in sustainable upgrades. These provide a competitive edge that a lot of commercial real estate still isn’t prioritizing.
Another long-term play to reduce risk is mixed-use developments. These blend offices, retail outlets, gyms, and private dwellings. Developers are keen on these in the current environment because they create their own demand. Local people purchase from the on-site stores, while the on-site stores encourage more people to move to the complex, enhancing value further.
Ultimately, while office issues linger for now, the rest of the commercial real estate sector is growing. This fact means the macro picture is quite different from what a lot of economists and business commentators think. The commercial real estate sector isn’t a homogeneous block. It’s actually quite a few different sectors.
“We’re very excited about what the future holds for businesses interested in managing or building new commercial property,” says PBR Capital Partners. “The changes being seen in the market are a reflection of that.”
