A New Dawn: Seizing Real Estate's Moment of Opportunity
By David Steinbach, Global Chief Investment Officer at Hines
As we enter 2025, we remain in the midst of a massive transition in the investment landscape. The momentum of the distant past (where unusually low interest rates helped propel growth, asset appreciation, and easy leverage) has faded, replaced by a more challenging environment requiring an increasingly strategic approach. But we believe a new era of recovery is upon us.
As many central banks have begun cutting interest rates, fundamentals have been improving, more capital has been coming into markets, and global growth has been strengthening. Broader themes such as meaningful demographic shifts and the rise of AI are also guiding our increasingly positive forward-looking investment thesis.
These are all reasons that investors should approach the new year with optimism. In fact, it’s our view that we’ll likely look back on 2025 as a pivotal moment of recovery in many areas of the commercial real estate sector. Our priority sectors and high-conviction themes for 2025 include:
Living: An acute housing supply shortage, unprecedented home unaffordability, and changing demographics have transformed the global living sector. We now see a pronounced proclivity to rent globally, with pockets of opportunity at the macro and local levels.
Retail: After years of turmoil, a transformed retail sector has emerged. Robust wage growth, strong consumer sentiment, and stabilizing global inflation indicate that this turnaround should continue. We believe these realities are converging into a compelling investment thesis.
Industrial: Despite softening fundamentals post-pandemic, the capital markets have remained bullish on the industrial sector. As such, it remains fairly, if not fully priced. This is particularly true for assets with short-term rollovers of seasoned leases, where buyers can underwrite large NOI gains on expiring leases given accrued market rent growth.
Office/Debt and Alternatives: Return-to-work continued to gain traction as the supply of the most desirable office spaces remained limited. In this environment, we see an opportunity to sequence exposure to the office market—a process we believe starts with a risk-adjusted approach to tactically leveraging debt. Meanwhile, niche sectors like student housing and data centers could offer compelling opportunities.
Although we remain largely bullish on markets in 2025, some risks remain. For example, although interest rates have started to fall, they will need time to normalize. Therefore, the focus must remain on disciplined investment. In this environment, rent growth (not cap rate compression) will likely drive value creation. And on the geopolitical front, Russia’s invasion of Ukraine and ongoing turmoil in the Middle East is further exacerbating global instabilities.
2024 saw several significant elections around the world, most recently in the United States. With a new season of governing upon us, we’re taking stock of the potential impacts of a new administration in Washington. While we remain optimistic, it remains to be seen what outcomes could result from potentially dramatic shifts in tariffs, immigration, and broader fiscal policies. Despite this uncertainty, we’re excited about the opportunities on the horizon to put fresh capital to work.