U.S. Real Estate Market 2025: 1031 Exchange Opportunities and Commercial Real Estate Outlook for Passive Investors
Complete overview of the 2025 commercial real estate market covering industrial, multifamily, office, and retail sectors with strategic insights for passive investors considering 1031 exchange opportunities.
Key Takeaway
The 2025 U.S. commercial real estate market is cautiously optimistic, with industrial real estate and multifamily investment leading the recovery. Tariffs and high interest rates have created supply constraints that benefit existing assets, while passive investors can capitalize through diversified Delaware Statutory Trust (DST) investments via 1031 exchanges.
2025 Commercial Real Estate Market Overview
Overall, the U.S. commercial real estate market in 2025 is cautiously optimistic. Prime office markets, especially in NYC and San Francisco, are leading the recovery. Multifamily investment and industrial sectors continue to perform robustly, assisted by constrained new supply which has contributed to moderate cap rate compression this year. Despite uncertainties in today's economic environment, one factor is clear: tariffs are now a first-order demand driver and high interest rates have contributed to supply constraint. The Trump administration's tariff program plus higher metals duties have reshaped near-term trade flows and tenant behavior.
Industrial real estate, multifamily, and select office markets are driving the recovery, but the landscape in 2025 is far more complex than it was even a year ago. Elevated tariffs, shifting supply chains, and higher construction costs have created both challenges and opportunities for passive real estate investors considering 1031 exchange strategies.
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State of the Market by Asset Class
Industrial Real Estate: Supply Constraints Drive Value
The industrial real estate sector is still digesting the effects of aggressive tariff policies. Higher duties on metals like steel, aluminum, and copper have driven up construction costs by as much as 2.5% above baseline inflation. This has made it more expensive to deliver new warehouse and manufacturing facilities, effectively creating a "replacement cost moat" for existing assets.
Vacancy rates nationally are holding steady in the mid-6% to low-7% range, and while leasing activity has normalized from the pandemic boom, demand from e-commerce, logistics, and reshoring continues to support occupancy. Supply has already started to tighten: only about 65 million square feet of new industrial space was delivered in Q2, the lowest level in years, and the pipeline for 2026 and beyond is thinning.
Office Real Estate: A Tale of Two Markets
The office sector tells a different story. While Class A properties in gateway markets like New York and San Francisco are recovering solidly thanks to return-to-office momentum, many secondary markets remain challenged. Vacancy in smaller metros is still above 20% and adaptive reuse or conversion to residential is becoming more common.
For DST investors considering Delaware Statutory Trust opportunities, this means office exposure should be approached with caution unless the asset is well-positioned or offers a clear value-add angle.
Multifamily: The Standout Performer
Multifamily investment remains a standout performer. Absorption is strong, vacancy is near historic lows, and rent growth is steady in most markets. Deliveries have begun to moderate, which should keep fundamentals tight into 2026. Unlike industrial or office, multifamily is less exposed to tariff-driven cost inflation, making it a reliable source of stable income for passive investors seeking consistent returns.
Retail Real Estate: Quiet Stabilization
Retail has quietly stabilized. Neighborhood centers and grocery-anchored properties are performing well, and redevelopment of underutilized malls into mixed-use communities is helping to prop up values in markets with strong housing demand. That said, the sector lacks the structural tailwinds seen in industrial real estate or multifamily.
Life Sciences: Navigating Oversupply
The life sciences environment is characterized by oversupply, softening demand, and funding headwinds. Q1 leasing activity slowed notably as excess lab space cushions the market. JLL estimates that between 20–25 million square feet of net absorption or supply reduction is needed to reach equilibrium in the over 200 million sq ft market.
Vacancy rates remain elevated. Cushman & Wakefield reports a 23.9% overall vacancy rate and asking rents have fallen roughly 3.3% year-over-year, though net absorption has slightly improved to –1.2 million sq ft in H1 2025 from –2.8 million in H1 2024. Nevertheless, select high-quality, well-located assets continue to perform with tenant demand shifting toward top-tier innovation hubs.
Current Market Trends and Considerations
Industrial real estate appears well-positioned for potential moderate growth over the next 12 to 24 months. Leasing activity may remain choppy in the short term as tenants adjust to shifting trade policies, but the combination of limited new supply and steady demand drivers suggests rents may hold flat to slightly positive in most infill submarkets. By 2026 and beyond, the slowdown in construction could potentially set the stage for another period of rent acceleration and value growth.
Office may remain bifurcated, with trophy assets in strong metros potentially performing well while commodity space continues to lag. Retail may stay stable, with potential opportunities in markets that support adaptive reuse or mixed-use development.
Multifamily investment may maintain its momentum, particularly in markets with strong job growth and limited new supply. Meanwhile, alternative sectors like data centers and self-storage may remain among the strongest performers, benefiting from secular trends that are largely insulated from tariff volatility.
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Positioning DST Investments for 1031 Exchange Strategies
For accredited investors considering Delaware Statutory Trust investments through 1031 exchange transactions, industrial real estate appears well-positioned for potential moderate growth and stable income, albeit with risk exposure to changes in tariff and trade policy. Multifamily investment and self-storage have reduced exposure to trade and supply chain volatility. Meanwhile, steady demand and a thinning supply pipeline could potentially enhance long-term returns, provided underwriting properly accounts for market-specific risks.
Multifamily investment, when balanced with industrial real estate and retail, can potentially serve as the foundation of a diversified, income-producing portfolio built for the opportunities and challenges of the years ahead. For passive real estate investors utilizing 1031 exchange strategies, this diversified approach through DST investments may offer both stability and potential growth in an evolving market landscape.
Key Takeaways for 1031 Exchange Investors
Essential 2025 Market Insights
- •Industrial real estate may offer potential moderate growth with supply constraints creating a "replacement cost moat" for existing assets
- •Multifamily investment remains the standout performer with strong fundamentals, low vacancy rates, and steady rent growth
- •Tariff impacts have increased construction costs by 2.5% above baseline inflation, benefiting existing property owners
- •Office markets are bifurcated - Class A properties in gateway markets are recovering while secondary markets remain challenged
- •DST diversification across industrial, multifamily, and select retail properties may provide both stability and potential growth
- •Professional guidance becomes increasingly valuable as market complexities require specialized knowledge in both real estate and 1031 regulations
- •Supply constraints in key sectors may present favorable conditions for strategic 1031 exchanges over the next 12-24 months
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About the Author
Thomas Wall, Partner
Thomas Wall has nearly a decade of experience in alternative investments and real estate. He has helped financial advisors at banks and wirehouses navigate a broad spectrum of equity, debt, and retirement investments at AIG which contributed to over $200MM of capital invested. From there, Thomas specialized in helping real estate investors navigate the transition from active management to passive real estate investing. He advises high-net-worth investors on 1031 exchanges, DSTs, private real estate offerings, and REITs. He has helped investors through hundreds of 1031 exchanges, placing over $230MM of equity into real estate. Today, with Anchor1031, he focuses on providing his investors with the tools they need to accurately assess risk and successfully defer taxes when repositioning their real estate portfolio.
Disclosure
Tax Complexity and Investment Risk
Tax laws and regulations, including but not limited to Internal Revenue Code Section 1031, bonus depreciation rules, cost segregation studies, and other tax strategies, contain complex concepts that may vary depending on individual circumstances. Tax consequences related to real estate investments, depreciation benefits, and other tax strategies discussed herein may vary significantly based on each investor's specific situation and current tax legislation. Anchor1031, LLC and Great Point Capital, LLC make no representation or warranty of any kind with respect to the tax consequences of your investment or that the IRS will not challenge any such treatment. You should consult with and rely on your own tax advisor about all tax aspects with respect to your particular circumstances. Please note that Anchor1031 and Great Point Capital, LLC do not provide tax advice.
The information contained in this article is for general educational purposes only and does not constitute legal, tax, investment, or financial advice. This content is not a recommendation or offer to buy or sell securities. The content is provided as general information and should not be relied upon as a substitute for professional consultation with qualified legal, tax, or financial advisors.
Tax laws, regulations, and IRS guidance regarding 1031 exchanges are complex and subject to change. Information herein may include forward-looking statements, hypothetical information, calculations, or financial estimates that are inherently uncertain. Past performance is never indicative of future performance. The information presented may not reflect the most current legal developments, regulatory changes, or interpretations. Individual circumstances vary significantly, and strategies that may be appropriate for one investor may not be suitable for another.
All real estate investments, including 1031 exchanges, are speculative and involve substantial risk. There can be no assurance that any investor will not suffer significant losses, and a loss of part or all of the principal value may occur. Before making any investment decisions or implementing any 1031 exchange strategies, readers should consult with their own qualified legal, tax, and financial professionals who can provide advice tailored to their specific circumstances. Prospective investors should not proceed unless they can readily bear the consequences of potential losses.
While the author is a partner at Anchor1031, the views expressed are educational in nature and do not guarantee any particular outcome or create any obligations on behalf of the firm or author. Neither Anchor1031 nor the author assumes any liability for actions taken based on the information provided herein.