Political instability and rising insurance premiums will be the biggest challenges for the real estate market in 2025.
The Real Estate Counselors (CRE) annual report cited by the National Association of Realtors (NAR) highlights the growing pressures on the industry, from geopolitical tensions to technological disruption.
The real estate sector is expressing cautious optimism following recent interest rate cuts and hopes for a soft economic landing. But headwinds persist, particularly with the upcoming election cycle affecting more than 70 countries.
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“Over 70 countries will hold elections next year, with the potential to shake up an already volatile geopolitical landscape, with the US election in particular raising concerns about regulation, trade, corporate taxes, immigration policy and sustainability. CRE Global Chair Anthony said. Delapelle said in his report:
With economic losses from natural disasters reaching $380 billion in 2023, insurance costs are a major concern. The report notes that only 31% of losses were insured, and premiums for home, hospitality and senior housing are rising. Traditional insurance models are facing pressure as property owners pivot to risk management and alternative coverage options.
Despite recent interest rate declines, funding remains tight. The report notes that approximately $1.8 trillion in commercial real estate loans will mature by 2027, putting pressure on both lenders and borrowers. Banks tend to expand existing loans, but regulatory constraints and capital reserve requirements limit the effectiveness of the strategy.
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NAR noted that the housing affordability crisis continues to deepen. Despite increased construction in major cities, the national housing shortage remains at 4.4 million units. Apartment rents have increased by 45% in 15 years, and 54% of renters are now classified as cost-payers, spending more than 30% of their income on housing.
Office space challenges continue, with vacancy rates predicted to approach 20% by the second half of this year. This shift has led to increased interest in converting offices into residential, medical, and educational facilities, but such conversions come with technical and financial hurdles.
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The rise of artificial intelligence (AI) brings both opportunities and challenges. While AI adoption increases across real estate operations, the industry is grappling with data fragmentation and location-specific complexities. The computing demands of AI systems are likely to drive the development of data centers.
The effects of climate change are increasing the focus on sustainability and resilience. European regulations lead global environmental standards, while U.S. regulations remain primarily regional. “The urgency to prioritize sustainability and climate resilience in real estate strategies has never been clearer,” Delapelle said, linking extreme weather events to rising insurance costs.
Price expectations between buyers and sellers show signs of convergence even after long periods of disconnection.
The report suggests that price differentials are likely to narrow as market participants adapt to the new conditions, with improvements expected across a wide range of property types.
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The article Top 10 Real Estate Issues of 2025: Political ‘Chaos’ and ‘Super Expensive Insurance’ Featured List originally appeared on Benzinga.com.
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