Grading 2025 Predictions: What CRE Got Right And Wrong This Year

“Uncertainty” may have been the word of the year for the CRE industry and the wider business community.

Few could have predicted how quickly and completely the second Trump administration would reshape the economy, or how often the administration’s priorities would change, especially when it came to tariff policy.

Given this, one would assume that predictions made in December 2024 for what was to come for commercial real estate in 2025 may now be hopelessly antiquated.

However, CRE professionals who shared their 2025 predictions with Bisnow were able to read the tea leaves accurately when it came to office vacancy recovery, increased investment in CRE and data center growth.

However, they proved less successful in seeing into the future of multifamily vacancy and bank write-downs on CRE loans in 2025.

As we prepare to turn the page to 2026, it's time to measure our 2025 predictions with reality. 

PREDICTION #1: Office Vacancy Will Start Decreasing
RESULT: True

The office market has seen more than its share of distress since the pandemic. In the last few years, return-to-office levels lagged behind repeated projections for recovery, and plummeting valuations left most investors looking downward for the great bottoming out.

But in the latter half of 2025, investors finally began to look up again. Office vacancy significantly improved in the third quarter for the first time since 2020.

Late last year, former CBRE Global Chief Economist Richard Barkham said he anticipated office vacancy to peak at 19% and begin to fall due to employers finally committing to take on more space.

Barkham wasn’t far off. The U.S. office market saw vacancy fall 20 basis points to 18.8% at the end of Q3, according to CBRE. This was the first year-over-year decline since Q1 2020. Leasing activity also exceeded its five-year quarterly average at 59.8M SF.

"In the second half of the year, the recovery momentum is quite apparent for capital markets and the office market," CBRE Global Head of Research Henry Chin said. “We are very happy to say the bottom of the office market has passed."

Demand for Class-A office space ramped up, leading some experts to predict a nationwide shortage of this asset class. As of the second quarter, office vacancy in trophy buildings was less than 15%, with CBRE projecting that number to be cut to 8.2% over the next few years.

However, that recovery wasn't felt evenly. In some markets, like Atlanta, Class-B office vacancy worsened while Class-A improved. 

PREDICTION #2: Banks Will See More Write-Downs, Particularly From Office Loans
RESULT: Somewhat False

While there have been some attention-grabbing headlines about bank write-downs in 2025, the rate actually decreased slightly from 2024, according to the Federal Reserve Bank of St. Louis.

There have been some notable write-downs in 2025.

Regional bank Zions Bancorp disclosed a $50M charge-off related to loans attached to a pair of real estate investors seeking to buy distressed commercial mortgages in October, The New York Times reported. At the same time, Western Alliance disclosed it might have been a victim of fraud involving CRE loans.

Bad news also hit some of the bigger players after auto lender Tricolor and auto parts supplier First Brands went under, leading JPMorgan Chase, Fifth Third Bancorp and Jefferies to disclose losses on loans from those companies.

Perhaps because of these headlines, banks have been aggressive in selling off loans they no longer want to carry.

As of the third quarter, eight regional banks have reported lower non-performing loans in their commercial real estate portfolios than a year ago, according to Reuters. In 2025, many banks continued to cut their exposure to the CRE market with private credit stepping up to fill the funding gap.

Roughly a dozen lenders have reduced their exposure to office loans. Flagstar Bank, which almost went under last year, began offloading roughly $4.7B in problem loans tied to multifamily and office assets in January. The bank limited its office exposure by 27% at the beginning of the year.

M&T Bank said it planned to limit its exposure to its office portfolio, and Citizens Financial said its office balance declined slightly in the third quarter, Reuters reported.

Morningstar Vice President Sarah Helwig said in a statement to Bisnow the office sector continues to remain the most distressed, and 2025 saw a wave of large office loans transferring to special servicing for maturity default, she said.

"Overall delinquency rates have continued to rise, led primarily by office loans, but also an uptick in multifamily and hotel delinquencies has contributed to the increase,” Helwig said in a statement.

PREDICTION #3: Multifamily Vacancy Will Decline
RESULT: False

Multifamily continued to get hit hard across the country last year as rapid supply stunted rent growth and fueled vacancy.

As of the third quarter, vacancy is still rising at 4.4.% with a total of 92,000 units coming online. Across the country, absorption fell by 73% at the end of the third quarter to 43,200 units, 53% below prepandemic Q3 averages.

Sun Belt markets are still working off the glut in the multifamily construction pipeline. Dallas, Phoenix and Austin each have an average of 30,000 units being constructed as of the second quarter, according to a RealPage report. With this bump in construction, multifamily owners and investors braced for worsening vacancy and rent growth.

Slow job growth, high interest rates and low consumer confidence have further impacted the multifamily market as a whole, Chin said.

"All of those, you factor that in so the rental growth is not there," he said. "The leasing activity has been weak."

PREDICTION #4: Data Centers Would Diversify Outside of Existing Hubs And Use Alternative Power Sources To Fuel Their Exponential Growth 
RESULTS: True

The data center industry continued its explosive growth. 

While there is no precise count of the number of new data centers in the U.S, JLL estimated in October that there was 8 gigawatts of colocation capacity under construction, a jump of more than 17% from the previous year’s 6.6 GW of new data center capacity under construction.

That rate of growth was mirrored in Virginia, which has historically been a hotbed for data center development. In October 2025, Business Insider reported that 54 permits had been filed for new data centers in the Commonwealth in the first nine months of 2025, which represented a 16% increase from all of 2024.

This rapid expansion is pushing data center construction out to locations developers wouldn’t have planned on going just a few years ago. This includes pursuing data center plans for rural locations that previously didn’t have them, like Harwood, North Dakota, Saline Township, Michigan, and Richland Parish, Louisiana. 

The International Energy Agency estimates that data centers used 183 terawatt hours (TWh) of power in the U.S. in 2024, or nearly 21 GW. That’s a 4% increase from 2023. In 2025, data center power use is expected to climb 22% further than in 2024, or 4.6 more GW, according to S&P Global.

Infrastructure analysts agree that the continued rapid growth of data centers will require significantly more power than is currently available from the U.S. power grid and that developers will need to find renewable power and localized power sources to meet those power needs.

The U.S. power grid saw 26 GW of new power capacity overall in the first half of 2025 compared to the same time period in 2024, according to the Federal Energy Regulatory Commission.

Renewable energy was responsible for much of that new power. Solar dominated this new power generation, responsible for 19 GW of that new energy capacity in the first half of 2025, according to a Utility Dive report.

By the end of this decade, roughly 38% of new data centers will have some type of on-site power generation, with 27% expected to fully produce their own power, according to a Bloom Energy study published in June.

These behind-the-meter methods include wind, solar, battery storage, geothermal and even nuclear power.

How quickly this happens will depend on utilities and regulators.

Utility providers so far have been reluctant to work with developers under unconventional agreements where a developer wants to mix on-grid and behind-the-meter methods. These providers have been slow to innovate and change under the fast-moving development of data centers.

And voters are beginning to push back on data center growth in fear that the centers could lead to increased power bills and environmental degradation. Power grid concerns likely were a difference-maker for voters in Georgia and Virginia who elected Democrats who championed increased data center regulation.

PREDICTION #5: CRE Investment Would See A Resurgence
RESULTS: True

Commercial real estate investment surged past 2024 projections for the coming year.

Total volume for the first nine months of 2025 stands 17% above the same period in 2024, sharing similarities to 2014 when investment activity began to pick up after the Great Financial Crisis, according to MSCI Real Capital Analytics.

CBRE forecasted only 8% volume growth over the year, but the company found sales growth doubled what they initially anticipated at 16%, Chin said.

"That shows you enough of the dry powder is sitting on the side," he said.

In the third quarter alone, investment sales rose 13% to $112B, according to CBRE. The rise was primarily driven by single-asset deals and improved lending conditions. Of these deals, private investors were the most active, accounting for $68B, or 61% of total investment.

Multifamily led the sectors in the third quarter with $42B in investment, up 10% year-over-year, according to CBRE. This was followed by the office market at $19B and retail with $16B, both sectors up 35% and 29%, respectively.

Senior housing saw the biggest bump in investment activity, increasing 61.5% year-to-date, followed by office, retail and industrial at 24.5%, 21% and 15.5%, respectively.

Senior housing's skyrocket in investment comes as population growth of older residents has outpaced development. Demand in the space is set to outpace supply by more than 300,000 units within the next five years, according to NIC MAP. 

As the investment community looks to 2026, there is more optimism for what is to come than in the year prior. Though trade volume still remains below prepandemic levels, there are signs that sidelined capital may loosen up in the upcoming year allowing for expected sales to grow 15% to 20%, according to Colliers’ 2026 forecast.