
As we move through 2025, the commercial real estate (CRE) market stands at a crossroads. Economic policy, capital flow, and global developments continue to define the market’s trajectory. Reflecting on my 20th conversation with Dr. Peter Linneman during the Walker Webcast, I’m reminded that while challenges persist, the resilience and potential of CRE remain undeniable.
Lessons from market cycles
Peter made a profoundly clear analogy comparing market dynamics to tides. Over the past two years, transaction volumes have remained at historic lows—a clear sign of low tide. Yet history shows us that tides do not stay out indefinitely. Peter’s confidence in an impending resurgence underscores the importance of patience and strategic planning.
Key takeaway: Suppressed transaction volumes are temporary, and with the right conditions, the CRE market will experience a robust return.
Revisiting cap rates and the capital equation
One of the most debated topics in our conversation was the trajectory of cap rates. Peter predicts a decline from the current 5.7 percent to 5 percent within 12 to 24 months. This counterintuitive forecast rests on the premise that capital markets are poised to recover, independent of minor fluctuations in interest rates.
While interest rates influence borrowing costs, the real determinant is the flow of capital. As Peter emphasized, “Money will flow,” driven by the intrinsic need to invest and the broader economic environment.
The influence of global events on CRE
Geopolitical factors are shaping CRE in complex ways. For example, the ongoing war in Ukraine has had a dual effect on the U.S. economy. While tragic, it has bolstered agriculture, energy, and defense goods exports, contributing to GDP growth. However, a resolution could temper this growth, reinforcing the nuanced impact of global crises.
Similarly, the devastating wildfires in California highlight the growing challenges of climate-related risks. Rising insurance costs and the necessity for resilient construction have become central to housing and infrastructure planning discussions.
Opportunities across asset classes
Each asset class in commercial real estate presents distinct opportunities and challenges this year. Here’s a closer look:
Multifamily
This sector continues to demonstrate resilience, particularly in the face of rising housing demand and constrained supply. Multifamily assets are ideal for those seeking stability and long-term value appreciation. With an anticipated population growth of over 10 million people in the U.S. over the next five years, demand for multifamily housing remains robust. Additionally, the undersupply of single-family homes further strengthens multifamily’s position as a reliable "stay rich" investment.
Office
Despite headwinds, the office sector offers significant upside potential for strategic investors. Peter referenced the opportunity to acquire well-positioned office properties at discounted values, describing this as a "get rich" play. Markets with growing employment bases or government activity, such as Washington, D.C., are particularly promising.
Data centers
The explosion of artificial intelligence (AI) and cloud computing continues to drive demand for data centers. However, Peter cautions against overbuilding in this sector despite its mechanical demand growth. Retail
Retail’s recovery remains selective, favoring experiential and convenience-focused centers in markets with strong consumer spending. Industrial
Driven by the e-commerce boom and shifting supply chain strategies, industrial real estate continues to benefit from rising demand. Strategic location selection and logistics integration will be key to securing high-performing assets in this space. 2025 predictions: What lies ahead
Peter’s economic predictions for 2025 shed light on the forces shaping the CRE market:
Interest rate cuts ahead
A reduction of at least 100 basis points is likely, reflecting progress in taming inflation. Lower rates will reduce borrowing costs, invigorating deal flow and refinancing activity across asset classes. Walker & Dunlop anticipate this trend will catalyze renewed interest in commercial real estate financing, particularly as investors recalibrate expectations for returns in a shifting interest rate environment.
GDP growth
Economic growth is projected to hover around 2.7 percent, though this figure depends on resolving geopolitical conflicts like the war in Ukraine. Such resolutions may temper some of the GDP contributions from energy and defense exports. Regardless, steady growth indicates ongoing opportunities in both stabilized and opportunistic investments.
Cap rates decline
The forecasted decline from 5.7 percent to 5 percent aligns with expectations for capital markets to recover, driving more robust transactional activity.

Crude oil prices to stabilize
Oil is expected to stabilize around $68-$70 per barrel, supported by increased U.S. production. This equilibrium will likely reduce transportation costs and support broader economic stability.
2025 will also bring new challenges, including the impact of maturing debt across CRE markets. With nearly $900 billion in commercial real estate loans set to mature in 2025, there’s potential for significant movement in transaction volumes. Lenders and borrowers will need proactive strategies for refinancing, restructuring, and facilitating liquidity in a tight credit environment.
The enduring importance of resilience and foresight
As I reflect on my discussion with Peter, I’m struck by the enduring lessons of his analysis. The tides of capital, while unpredictable in their timing, are inevitable in their return. For CRE stakeholders, the message is clear: resilience, adaptability, and strategic foresight are the keys to navigating the complexities of 2025.
Whether you're an investor, developer, or advisor, now is the time to prepare for the next wave. As always, Walker & Dunlop closely monitors CRE market trends and opportunities. Join our mailing list for the latest commercial real estate insights.
News & Events
Find out what we’re doing by regularly visiting our news & events page.
Walker Webcast
Gain insight on leadership, business, the economy, commercial real estate, and more.