5 Trends Defining CRE Development in 2025
Plus some unexpected takeaways from Trammell Crow’s latest research.
In the real estate industry, development has to take the longer view, since with few exceptions, the process is a longer-term undertaking. In its new research note, Development in 2025: Five Key Trends Shaping the Industry, Trammell Crow Co. details five current and unprecedented forces shaping real estate development within the broader context of longer-term change in tech, demographics and global economic growth.
The five include the realignment of global supply chains, shifting generational housing preferences, the rise of data centers as critical infrastructure, the continued importance of life science clusters and the need for localized strategies in fragmented markets.
“One of the more unexpected takeaways from our research is the extent of demand fragmentation across real estate sectors,” TCC Director of Research Louis Rosenthal told Commercial Property Executive.
“Initially, we expected this to be a temporary post-Covid effect, but the data points to a deeper structural shift,” Rosenthal said. “We see this playing out in the form of highly localized housing demand patterns, the growing divide between premium and commodity office space, and the divergence between big-box and smaller-footprint logistics facilities, among other examples.”
Industrial sector growth via supply chain shifts
Supply-chain reconfiguration started as a short-term reaction to the pandemic and geopolitical tensions of the early 2020s, but now “shifting trade alliances, reshoring initiatives and geopolitical shifts are reshaping real estate development opportunities in ways that signal a possible long-term realignment,” the Trammell Crow note explains.
The trend actually predates the pandemic, though it has accelerated since then. The changes aren’t merely “deglobalization,” the note points out, but a more nuanced reconfiguration.
For real estate, especially the industrial sector, the upshot of the change is increased demand, as businesses rethink far-away production and consider inventory stockpiling closer to home as insurance against the kinds of disruptions seen recently.
READ ALSO: The Future Demand for Industrial Is Decarbonized
But the change for the industrial sector will be more fundamental than that, TCC explains, as U.S.-based advanced manufacturing kicks into higher gear, with a renewed domestic emphasis on the likes of semiconductors, clean energy components and electric vehicles. “These initiatives are catalyzing demand for logistics infrastructure near manufacturing hubs, ports and rail yards,” the note posits.
Housing: A Tale of Generational Convergence
In the residential sector, a lot is going on, TCC points out: Millennials are busy forming families, Gen Zers are kicking off their careers and expanding the renter pool, and Baby Boomers (who are still around) are transitioning into retirement.
Gen Z will be especially active in the near term, contributing at least 1.5 million net new households in 2025, the note explains, citing John Burns Consulting data. There are currently 46 million 18- to 27-year-olds in the U.S., and they have roughly the same housing aspirations as previous generations: renting early, ownership later, especially as they start families.
But the U.S. demographic outlook is about more than each group moving into a different phase of life and the potential impacts on residential markets. In 2025 and beyond, there are complicating factors: housing costs are rising and the definition of life-work balance is changing, creating overlapping and sometimes competing housing needs across the generations.
“These demographic shifts present a unique opportunity for lower-density multifamily housing in inner and second-ring suburbs, where space, affordability and community align with the preferences of renters across generations,” the note predicted. While mostly those opportunities are in the suburbs, there is still a place in some urban areas for top product, particularly in convenient locations.
Data centers now strategic infrastructure
TCC characterizes data centers in 2025 and beyond as strategic infrastructure, vital to powering the entire digital transformation. That includes AI, but much more than that.
For its part, AI holds immense transformative potential for the economy and property markets, the note explained, though its impact is likely to vary across economic sectors, industries and property types.
“A gradual, longer-term adoption scenario encourages prioritizing adaptable spaces that can evolve alongside technological advancements… while avoiding premature commitments to speculative, AI-specific features, product types and markets that may take longer to materialize,” the note said.
With all that in mind, the company is focusing on developing data centers in markets with the right balance of a number of key factors. First, access to large population centers, but also proximity to financial hubs, e-commerce centers and national security and defense operations. There also needs to be supportive infrastructure and power availability, and (last but hardly least) land affordability.
Clusters anchor life science demand
The life science boom isn’t new, either, but as the immediate post-pandemic momentum in the sector fades, 2025 will be a “pivotal year” for the sector, according to TCC. The key going forward is balancing cyclical supply challenges with structural drivers, namely advances in biotech, and other health-care and aging therapies, which will continue to be robust over the long term.
The concept of clusters is at the heart of the company’s life science strategy. Clusters are bio-innovation hubs where research labs, universities, hospitals and manufacturing facilities form innovative business ecosystems.
“These clusters generate consistent demand for space, premium rents and, in some cases, public policy incentives that drive further development,” the TCC note explained.
READ ALSO: Life Science Trends to Watch in 2025
Established life science clusters include Boston and San Francisco, and examples of emerging ones are Raleigh, N.C., and Los Angeles. In any case, according to TCC, the challenge for 2025 and beyond lies in meeting the sector’s evolving needs by delivering the right space in the right places.
Fragmented demand poses challenges (and opportunities)
The final factor detailed in the TCC note is what it calls “micro-market nuances.” Knowing broad market, or even submarket trends, is well and good, but ours is a time of fragmentation of demand.
“Our research highlights the fragmentation of demand, showing how migration patterns, affordability challenges, and tenant preferences can vary significantly within the same submarket,” the note said.
Thus, identifying resilient micro-markets, even within markets that are sluggish overall, can be critical to identifying development opportunities. Data is a powerful tool for uncovering these opportunities, but it is only a starting point that depends on the ability and experience needed act on it.
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