Commercial real estate (CRE) is at a pivotal moment thanks, in-part, to the current macroeconomic backdrop of slow economic growth, disinflation over the long run notwithstanding intermittent spikes as seen early in the year and anticipated lower interest rates.

Couple that with the present drawdown in commercial real estate valuations, and well-capitalized buyers will find significant buying opportunities for high-quality core assets.

The log scale of the NCREIF NFI-ODCE index provides a good view into how commercial real estate may respond to the present decline. Since 1978, the index has only experienced three sustained declines – the S&L crisis of the 1980s and early 1990s, the Great Financial Crisis (GFC) of 2007-2008, and the current decline, which happens to be the second largest drawdown in the history of the index. In the five-year period after both the S&L crisis and GFC, commercial real estate strongly outperformed its long-term average returns, posting double-digit annual gains verses the 7.95 percent gain since inception.¹ This historical perspective provides a rare opportunity for real estate investors to achieve value-add-like returns in core assets.

NFI-ODCE Index (Log Scale): After a peak to trough decline of 18.70 percent – and seven straight negative quarters, the NCREIF NFI-ODCE index notched a 0.25 percent gain in Q3 2024.¹

Supply/Demand Dynamics Across High-Conviction Sectors

The demographic backdrop will drive supply/demand dynamics for CRE during the next decade. Given the slow-growth macroeconomic environment, the strongest real estate sectors will be those whose demand is tethered to life events rather than economic growth. Those same real estate sectors also benefited from the low interest rates of 2020 to 2022, seeing a boom in construction starts during that time period.

By reviewing current population trends and the respective demand patterns, we anticipate the property types that will most closely be tied to demographic trends include self-storage, student housing, multifamily, build-to-rent, senior housing, and the following two featured sectors.

Manufactured Housing: Manufactured housing has seen increased demand as it serves a critical function in the goal of providing affordable housing.² The sector has also seen strong rental growth given the significantly limited availability, with very few sites constructed in recent years.³

Manufactured Housing Completions & Demolitions (2000 to Q2 2024)²

Medical Outpatient Buildings: Medical outpatient demand will remain quite strong in 2025, benefitting from the most impactful demographic trend underway in the growth of the 65-plus population. This increased demand continues to exceed supply, resulting in higher rents as occupancies reach a five year high across the sector.⁴

Demand has Outpaced Supply Since Q2 2021, Causing Occupancy to Rise⁴

While we expect some short-term challenges to rent growth in 2025 across certain sectors, much of the new supply created during the 2021 to 2023 period is hitting the market. Thus, providing well-capitalized buyers with a long-term investment horizon with a compelling buying opportunity during a rare pullback in valuations. Combining the pullback in values with a low interest rate outlook and strong demographic demand, 2025 will be an exciting time to enter the real estate market.

1 NCREIF NFI-ODCE Index

2 Fannie Mae. Multifamily Affordable Housing Market Commentary. September 2024.

3 Manufactured Housing Institute. About Manufactured Homes. Accessed December 2024.

4 CBRE. 2025 U.S. Healthcare Real Estate Outlook. November 2024.