The Four Forces of Real Estate

Understanding the shifts that defined the past year and the conditions that will shape real estate’s next phase.

By: Tangia Zheng

Dec. 1, 2025

Commercial real estate in 2025 moved decisively into a new structural phase, one shaped not by cyclicality but by the physical limitations and economic realignments that emerged throughout the post‑pandemic era. Power availability, industrial policy, climate migration, insurance repricing, and infrastructure capacity overtook interest rates as the determinants of market performance.

The clearest structural pressure came from the rapid expansion of AI‑driven power demand. Primary North American data‑center markets entered 2025 with historically low vacancy. Publicly available reports show wholesale data‑center vacancy at 1.6% across major markets, while colocation vacancy sat near 2.3%. These are record lows and reflect a deep imbalance between immediate capacity and accelerating compute requirements. In Northern Virginia, the world’s largest data‑center market, grid interconnection queues expanded to multiyear timelines. While exact megawatt figures vary by utility territory, the broader trend is well‑documented: available near‑term power is scarce, demand dwarfs deliverable supply, and tenants have begun reallocating growth to alternative metros.

This scarcity redirected site‑selection activity toward markets with faster interconnection timelines and more predictable utility conditions. Phoenix, Dallas-Fort Worth, Atlanta, Columbus, and Salt Lake City all saw increased commitments and pre‑leasing activity. Phoenix, for example, continues to add significant capacity, supported by a more manageable power‑delivery environment, though exact MW absorption is typically reported only in aggregate by brokers. Dallas maintained its position as a diversified compute and industrial market, partly due to its scalable grid and robust transmission infrastructure.

Industrials:

The industrial sector, despite years of strength, entered 2025 in a period of normalization. National industrial vacancy reached 7-7.5%, the highest in roughly a decade. This shift reflected both a surge in deliveries and a cooling in net absorption. Asking rents stopped accelerating at the pace seen from 2021 through 2023. Even so, the bifurcation within the sector widened.

Automation‑ready, energy‑capable, and strategically located logistics properties outperformed commodity warehouse stock. Submarkets near intermodal hubs or with access to major population centers maintained relatively strong rent performance even as national indicators softened.

Office:

Office behavior followed an entirely different pattern. In most large metros, only a small set of micro‑districts were able to sustain positive absorption. These districts often shared a common set of attributes: proximity to transit, adjacency to academic institutions, high walkability, or concentrations of knowledge‑economy employment. In New York, Chicago, Boston, and Seattle, occupancy stability was found in pockets rather than across entire submarkets. Citywide vacancy metrics hid the fact that well‑located, amenitized buildings maintained strong leasing activity while older, less adaptable stock experienced ongoing value erosion.

This divergence in performance also informed value adjustments. In some metros, older office assets experienced 25%-50%nominal value declines relative to pre‑pandemic baselines, consistent with reported appraisals and loan‑level work‑outs. These declines were not evenly distributed. Buildings with strong bones, realistic conversion potential, or connectivity to high‑demand districts saw stronger bids once pricing reached a sustainable level.

Manufacturing:

Manufacturing and advanced industrial activity offered a counterweight to softening traditional industrial metrics. U.S. manufacturing construction spending, according to public data, hovered near $225 - $230 bn annualized through early 2025. This is roughly three times higher than in early 2021. Semiconductor fabs, battery plants, and advanced‑manufacturing facilities were disproportionately concentrated in the South, Midwest, and Mountain West. The real estate spillover from these investments has been substantial, though quantifying exact multipliers is difficult. What is clear is that secondary and tertiary logistics markets tied to these plants saw elevated land activity and long‑term leasing interest.

Climate:

Climate migration reshaped demographic patterns in a quantifiable way. States in the Mountain West and South-Idaho, Utah, South Carolina, Texas, Florida-recorded population growth rates around 1.5%-1.7%, roughly three times the national median. These inflows supported multifamily occupancy rates near 94%-95% in many of these metros. National rent growth was modest at roughly 1% YOY, but fast‑growing, relatively affordable metros frequently posted mid‑single‑digit gains.

Insurance:

Insurance repricing produced measurable impacts as well. National homeowners’ insurance premiums rose approximately 24% cumulatively from 2021 to 2024, with some coastal and catastrophe‑exposed states experiencing significantly larger increases. For commercial property owners, insurance often rose by double digits year over year in high‑risk regions. Rather than assigning precise DSCR impacts, the more defensible observation is that rising premiums materially compressed cash flows in high‑risk coastal areas while stabilizing or improving the underwriting profile of inland and climate‑resilient markets.

Specialized niches moved in different directions. Cold storage, long considered a growth sector, entered 2025 facing a more complex supply picture. Some industry analyses highlighted an emerging oversupply in certain regions, with vacancy notably higher than typical industrial levels. At the same time, long‑term demand remained underpinned by shifts in food‑distribution networks and climate‑driven agricultural realignments. Advanced‑manufacturing adjacency remained one of the more resilient themes, though still dependent on supportive federal incentives. Health security and bio‑manufacturing facilities continued to attract public and institutional investment but at cap‑rate levels closer to traditional lab markets.

Credit conditions across asset classes adjusted sharply. Office debt coming due in 2025 faced a refinancing market defined by higher spreads, tighter underwriting, and selective lender appetite. Loans that priced at spreads of 250 basis points earlier in the cycle frequently repriced substantially wider. Private credit filled part of this gap, but at materially higher rates. This forced owners to revisit business plans, restructure capital stacks, or consider distressed transactions. The magnitude of valuation adjustments varied widely by asset quality and location.

Against this backdrop, adaptive reuse gained new credibility in markets where office pricing finally reset to levels that made conversions economically viable. While it is difficult to generalize IRRs due to project‑specific factors, conversion feasibility became more common where basis reductions aligned with structural demand in housing, education, civic uses, or specialized industrial formats. Senior housing, particularly medically enriched facilities, remained relatively stable, with cap rates commonly in the mid‑single‑digit range and persistent demographic pressure supporting NOI growth.

Policy:

Policy continued to exert structural influence. Federal industrial incentives shaped regional economic maps. Some states and municipalities accelerated zoning reform, enabling conversion pipelines that were previously non‑economic. Transit expansions in markets including Los Angeles, Seattle, and Washington, DC shifted long‑term absorption forecasts for adjacent districts. Water governance emerged as a material site‑selection factor in the Southwest. These policy‑driven forces did not move markets uniformly but served as critical differentiators.

Altogether, the metrics from 2024 and early 2025 show a real estate landscape divided between infrastructure‑aligned markets and those constrained by outdated grids, insurance challenges, or regulatory bottlenecks. Markets with affordable and available power, predictable regulatory frameworks, stable insurance profiles, and population inflows are structurally advantaged heading into 2026. The metros poised to lead-Dallas, Phoenix, Columbus, Salt Lake City, San Antonio-share these characteristics. Others like Atlanta, Charlotte, and Denver benefit from strong fundamentals but face emerging constraints. Coastal markets with escalating insurance burdens or limited infrastructure capacity may continue to lose relative ground.

The outlook for 2026 is therefore not a story of cyclical recovery but structural repositioning. Power, water, infrastructure, and policy alignment form the new foundation for growth. Capital, in turn, is following these fundamentals. In the articles that follow, each of these dynamics will be translated into market‑level forecasts, investment implications, and return expectations for the coming year.