Plummeting New Supply Set to Reshape Commercial Real Estate Landscape in 2025 :: Hospitality Trends

• JLL predicts a significant decline in new supply for in-demand assets across property types in 2025, particularly in the U.S. and Europe.
• Urges investors and real estate participants to understand supply and demand dynamics in detail, given the changing economic, regulatory, and geopolitical landscape.

The commercial real estate market in 2025 is poised for pivotal changes, according to a detailed report by JLL. The global real estate cycle appears to have turned a corner, with the strongest sentiment results in nearly three years as of November 2024. However, 2025 will not be without challenges. Economic, fiscal, regulatory, and trade policies are expected to continue shifting, and geopolitical conflicts could further complicate the landscape. Despite these uncertainties, opportunities are predicted to be plentiful for those who understand the market, asset, and space-level nuances and the overarching trends.

Supply shortages for in-demand assets across property types will worsen in 2025. A decline in new supply will impact nearly all commercial real estate sectors in the U.S. and Europe, primarily due to high construction and financing costs and labor market constraints. The report predicts a 73% drop in new office completions in the U.S. and a 56% decline in industrial assets. Europe will see a 30% drop-off in new office completions. The Asia Pacific region is an exception due to more favorable construction and demand conditions. Data centers also face critical supply shortages, with demand significantly exceeding supply.

For European and U.S. markets, slowing new supply will have several implications. Despite high vacancy rates in some property types, there will be a severe lack of high-quality space options for office occupiers looking to expand or relocate. This will likely increase the share of lease renewals and necessitate more proactive portfolio management. As competition for top-quality space intensifies, there will be greater emphasis on redevelopment and retrofitting and a stronger demand for emerging hotspots and next-tier assets. Investors will need to understand supply and demand dynamics in more detail, as performance will be more determined by asset, market, and sector selection.

JLL’s research indicates that commercial real estate investments have a history of outperforming on returns and contributing to overall portfolio stability. Investments made in 2025 will likely see an early-mover advantage in returns, a phenomenon that will diminish as the cycle matures. Intensifying supply shortages will amplify competition for quality existing assets as more investors re-enter the market. More capital is showing up to the table and bidding on opportunities, indicating the onset of a new liquidity cycle.

Lastly, JLL predicts that growing corporate confidence in portfolio requirements will accelerate decision-making. After years of reducing space requirements, portfolio expansion is back in the cards. Many organizations have gained a degree of certainty around the hybrid/in-workplace split and are in a position to make real estate decisions. In 2025, decisions regarding new space will need to incorporate flexibility for future expansion. Competition for the best spaces will continue to intensify, and companies must affirm their strategies and be proactive in securing their desired spaces.

The above insights are courtesy of JLL’s Global Real Estate Outlook 2025 report.