U.S. CRE 2025 Outlook: Data Center Craze; Office Haves and Have Nots; Retail Thrives; and Otherwise Stable Property Fundamentals

Morningstar DBRS issued its 2025 outlook for the U.S. commercial real estate (CRE) market looking at loan performance and property fundamentals.

Key Highlights:
-- The need for data centers and the associated financing will remain strong in 2025. Tenant demand driven by hyperscalers, combined with strong corporate credit profiles, and demand for data computation have created a strong development pipeline.
-- We expect office performance to continue to make headlines as it currently has surpassed the other commercial property types in terms of transfers to special servicing. However, we note that there is a division when it comes to premier office buildings in desirable markets outperforming the rest of the co-hort.
-- Property all-risk insurance in the CRE space will be a focus. We point to insurance concerns on coastal resort hotels as the regions are affected by weather events.
-- Overall, the rise in interest rates over the last year has had an impact on the ability of maturing loans to refinance in a timely manner, and that is expected to be a challenge in 2025 as well.