The commercial real estate (CRE) market is always evolving, influenced by economic, technological, and societal changes. As we move into 2025, several trends will shape how commercial properties are valued. Understanding these trends can help investors, developers, and businesses make informed decisions.
Let’s explore the key trends in commercial real estate appraisals for 2025.
1. The Rise of Technology in Property Valuation
Technology continues revolutionizing the commercial real estate industry, and appraisals are no exception. In 2025, Artificial Intelligence (AI) and machine learning will become more prevalent in appraisals. These tools can analyze vast amounts of market data, predict property values more accurately, and streamline the appraisal process. Automated valuation models (AVMs) are already gaining popularity, offering faster and more cost-effective alternatives to traditional appraisals.
2. Changes in Office Space Demand
How businesses operate has changed significantly due to the pandemic, and in 2025, the demand for office space may continue to fluctuate. As remote work becomes more common, the need for large office spaces in central business districts may decrease. Appraisers will need to factor in these shifts in demand, with hybrid and flexible office spaces becoming more important. Properties that cater to flexible workspaces and offer amenities like co-working areas are likely to see a more favorable appraisal.
3. Increased Focus on Location and Accessibility
Location has always been a crucial factor in determining property value and will continue to be in 2025. However, there’s a shift towards evaluating properties based on their accessibility and connectivity rather than just prime locations. Proximity to transportation hubs, such as metro stations or major highways, will be more important than ever. The appraisers must consider how easily tenants and customers can access a commercial property and whether the area is well-connected to other business hubs.
4. Interest Rates and Economic Conditions
Interest rates and the broader economic environment will always influence commercial property values. As we move into 2025, rising interest rates could put downward pressure on property values. Higher borrowing costs may reduce demand, especially in the retail and office sectors, leading to lower appraised values for certain properties. Appraisers will need to stay attuned to shifts in interest rates and adjust their assessments accordingly.
5. Adaptive Reuse and Redevelopment Potential
With consumer behavior and business model changes, more properties are being repurposed for new uses. For instance, old malls are converted into mixed-use developments, and office buildings are adapted for residential or co-working spaces. In 2025, appraisers will increasingly evaluate properties based on their redevelopment potential. The ability to repurpose or adapt a property to meet current market demands can significantly impact its appraised value.
6. Increasing Demand for Industrial and Logistics Spaces
The rapid growth of e-commerce has created strong demand for industrial and logistics properties. In 2025, appraisers will continue to see increased interest in warehouses, distribution centers, and fulfillment centers. The shift toward e-commerce and the need for efficient supply chain operations will keep industrial properties in high demand, which could drive up their appraised values.
7. Market Shifts in Property Types
The commercial real estate market is seeing shifts in the types of properties in demand. Online shopping growth challenges retail spaces, while multifamily and mixed-use developments gain traction for the market shift. Appraisers must account for the changing preferences of investors and tenants when valuing different types of commercial properties. For example, properties that blend residential, office, and retail spaces will likely continue to see value growth.
8. Inflation and Property Costs
Inflation remains a key concern in the global economy, and commercial property appraisers must factor this into their valuations in 2025. Rising construction costs, labor shortages, and higher prices for materials may impact the value of newly developed properties. Appraisers must be mindful of how inflation influences both the cost of property development and the potential for rental income, which can, in turn, affect overall property values.
Conclusion
Technological advancements will shape the commercial real estate market in 2025, changing demand in office and retail spaces, sustainability, and economic conditions. Appraisers must adapt to these shifts by considering location, accessibility, market trends. As it will be the potential for property reuse or redevelopment.
