Real Estate 2025

INTRODUCTION Contributed by: John Sullivan and Matt Alshouse, DLA Piper LLP

Not surprisingly, data centres were again seen as driving the entire US commercial real estate market forward, along with renewed optimism around continued interest rate improvements and lower vacancy levels. This is not just a US phenomenon, of course: JLL’s global real estate outlook from last December projected another nearly 20% increase in new inventory coming online around the world this year, which still does not come near to satisfying user demand. Potential limiting factors: the maturity wall, climate change and US immigration concerns Views are not entirely rosy, of course. There are a number of factors with the potential to limit growth in market activity and prices in 2025. Although we have climbed over the peak of the so-called “maturity wall” there is still loan maturi - ty risk in the markets as we head down the other side. In the United States, for instance, upwards of 30% of the office loans maturing this year are collateralised by properties valued at less than loan principal. Continuing concerns about the impacts of cli - mate change are also a drag on market opti - mism. Long-term prognostications about where populations will want to live have become more difficult, making development decisions com - plicated. There are also short-term impacts, with extreme weather events happening more and more frequently. Intermittent supply disrup - tions, questions about whether certain loca - tions are becoming less and less attractive, and, more immediately impactful in real estate markets, skyrocketing insurance costs. Accord - ing to Deloitte, average commercial property insurance premiums have nearly doubled in the last decade, and are predicted to increase by almost 9% per year through at least 2030. In extreme weather areas, these increases will be even higher and some markets may even see a

complete lack of third-party insurers in the fore - seeable future. In the United States, it remains to be seen whether inflationary pressures from restrictive immigration policy, and aggressive deportation activity, materialise, and whether those pres - sures hamper real estate markets. At a mini - mum, it could lead to relevant labour shortages and construction cost increases. Most experts have concerns over restaurant and agricultural operations viability, which could of course have secondary effects on property markets. Conclusion As the calendar turned from 2024 to 2025, there was a general sense of optimism in the real estate sector. Inflation appeared to be cool - ing, interest rates had reduced from their post- COVID peaks, and there were record amounts of available investment capital. Transaction flow had started to pick up and lenders were becom - ing more active. Construction was beginning to pick up steam. The recently announced tariffs have, however, injected uncertainty into the picture. The Eco - nomic Policy Uncertainty website, a joint pro - ject of researchers at the University of Chicago, Northwestern, and Stanford, has a series of Eco - nomic Policy Uncertainty Indexes, showing eco - nomic policy uncertainty for various countries. In February 2025, the US index hit 334.51. Going back to 1985, that is the highest level outside the worst of the pandemic. Although the long-term impacts of the recently announced tariffs are difficult to predict, many investors, developers, lenders and other mar - ket participants are pausing – or at least slow - ing down – their new investment and capital improvement activities until there is more clarity.

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