(Lending Rates Last 12 Months, Business Lending Partners, info@blp504.org | Courtesy of Windermere Realty Trust)
There are several indicators that suggest a strong commercial real estate market in 2025. Here are four indicators affecting our local markets.
Economic Stability: A stable economy with moderate growth, low unemployment, and easing inflation can boost investor confidence and drive demand for Commercial Real Estate (CRE).
The Federal Reserve Bank of New York’s Center for Microeconomic Data last week released the December 2024 Survey of Consumer Expectations, which shows that inflation expectations were unchanged at the short-term horizon and remaining relatively stable over the next three years.
While year-ahead household income growth expectations declined slightly and are now comparable to their pre-pandemic levels, spending growth expectations increased and remain well above pre-pandemic readings. Consumer spending expectations are an important factor for businesses in planning their strategy including their need for capital assets such as CRE.
Doug Bonate, commercial banking relationship manager with Umpqua Bank believes business opportunities in 2025 are better than the last two years because he thinks businesses are learning to adapt to volatile economic factors such as increasing labor costs, labor shortages, tax increases and supply chain uncertainties. “Workforce has been one of the greatest hurdles for our clients,” Bonate says. “We see automation becoming more relevant as businesses adapt to labor shortages. Power shortages will eventually be a limiting factor as our regions grows. Developing alternative power sources will be on the agenda.”
Taylor Thompson, vice president, commercial loan officer — Central & Eastern Oregon team leader with SELCO Community Credit Union says, “Looking ahead to 2025, Central Oregon’s CRE market opportunity depends on economic indicators such as inflation, job growth and consumer spending as well as the interest rate environment.
“If the Fed continues its pivot toward lower rates or maintains a stable policy, 2025 could mark a period of increased stability for CRE. On the other hand, grade B office spaces may continue to face challenges and retail spaces might still see uneven recovery depending on location and adaptability. Overall, I anticipate modest growth and a shift toward resilience in well-positioned asset classes.”
Capital Availability: Despite tight lending practices, alternative sources like private equity, that makes capital more accessible for investments, are showing up in Central Oregon.
Two examples of local private equity investments are Blackstone and Realty Income Corp. Blackstone Inc. is the largest holder of commercial real estate in the world. Blackstone now owns over 50,000 sq. ft. of industrial space in Redmond. Realty Income Corp., based in San Diego operates as a publicly traded Real Estate Investment Trust (REIT). They own over 17,000 sq. ft. of retail space in Redmond.
“Sometimes the Cap Rates just don’t make sense compared to other guaranteed rates,” Bonate says. “We’ve seen more investor financing during this higher interest rate environment. We anticipate investor financing through banks to remain low for now.”
Sector Performance: Industrial and multifamily sectors are showing resilience and leading the recovery with retail remaining steady. Central Oregon has higher than industry level occupancy rates for all sectors.
Thompson says, “The recent interest rate cut is likely to reinvigorate activity in CRE, especially in sectors that have been holding off on financing due to higher borrowing costs. Lower rates improve affordability for investors, encouraging new acquisitions and refinancing opportunities.
“Specifically, sectors like multifamily and industrial properties, which are already experiencing strong demand, may see increased investor interest. If the Fed projects a stable rate trajectory, we could see sustained momentum in CRE investments as confidence builds.”
Bonate says, “Umpqua Bank will evaluate all opportunities but generally underperforming properties will be prime opportunities for repurposing or redevelopment.”
He provided a current example. “Umpqua Bank is engaged in funding a large manufacturing project in Redmond and poised to continue with other opportunities as they arise. We see the most potential in Industrial and Manufacturing sectors.”
Demographic Shifts: Notable global demographic shifts are reshaping economies and creating new investment opportunities.
Recently, there is corporate pressure to move back to the office for many large tech companies headquartered in Los Angeles, San Francisco and Seattle.
However, Deschutes County ranked #6 out of Oregon counties in a recent Census Bureau American Community Survey with over 96,000 (20%) residents working from home at least some or all of the time.
This demographic shift is having a profound impact on development projects, investment options, city planning, commercial land prices and CRE valuation.
Post-election, optimism is on the rise in the small business community. The Q4 2024 CNBC|SurveyMonkey Small Business Survey reveals a surge in optimism covering issues from taxes to regulation, immigration and even trade policy. This factor along with the fact of improving economic conditions collectively point towards a cautiously optimistic outlook for the commercial real estate market in 2025.
