The U.S. real estate sector is looking ahead to 2025 with cautious optimism. Despite challenges such as soaring insurance rates, labor shortages, and economic shifts, there is hope for a more stable landscape. Companies that prioritize strong risk management strategies will find opportunities for growth and resilience.
After experiencing years of rate hikes, property insurance costs are expected to level out in 2025. Insurers are taking a cautious approach through disciplined underwriting, resulting in projected commercial property rate increases of no more than 5 percent. In some cases, policyholders may even see rate reductions of up to 10 percent, depending on their risk profile and location.
However, properties in disaster-prone areas continue to be expensive to insure, especially with recent record-high storm-related losses. This calls for increased scrutiny on property valuations and resilience measures, such as fortifications and up-to-date valuations. Collaborating with brokers skilled in data analytics and resilience planning can help property owners secure favorable insurance terms and enhance environmental risk readiness.
The past few years have been challenging for profitability in the real estate industry, with higher costs in construction, labor, and insurance, as well as rising vacancy rates. Office vacancies exceeded 20 percent in 2024, while industrial sector vacancies reached 5.6 percent. With nearly $1 trillion in commercial real estate mortgages maturing by the end of 2025, real estate owners face critical refinancing hurdles amidst rising costs.
However, there is potential for improvement. The Federal Reserve cut interest rates in late 2024, and further reductions may relieve some financing stress while stimulating demand. Coupled with stabilizing insurance costs in many areas, the industry is poised for potential recovery. To capitalize on cost savings and mitigate risks, real estate owners should work closely with experienced experts to secure insurance coverage that meets their needs.
In addition to economic factors, real estate owners must also prepare for emerging risks, such as litigation and cybersecurity threats. Third-party litigation financing has led to an increase in lawsuits against property owners, particularly related to accessibility issues. As the real estate sector adopts more digital solutions, cybersecurity threats are also on the rise.
To counter these risks, a comprehensive risk management strategy is essential. Real estate companies should prioritize thorough risk assessment, disaster planning, and regulatory compliance. By doing so, they will be better equipped to handle unpredictable challenges.
Labor shortages continue to impact the real estate sector, particularly in property management, maintenance, and landscaping roles. Many workers have moved to remote or higher-paying jobs, making it difficult to fill critical on-site positions. These shortages also affect tenants, as businesses in hospitality, retail, and food services struggle with staffing. Short-staffed properties can lead to higher crime rates and operational inefficiencies, ultimately impacting the real estate owner’s bottom line.
To address these issues, companies should utilize data analytics to create personalized benefits strategies that foster an engaging employee experience and boost retention. By tailoring solutions to meet workforce needs, property owners can enhance productivity and ensure long-term operational stability.
To position for growth in 2025, real estate owners and operators should prioritize risk management, workforce vitality, and resilience. Here are four strategies for success:
1. Embrace proactive risk management: Review your risk profile and work with your broker to build a tailored insurance strategy. Higher deductibles may help reduce premiums, and alternative risk transfer options can alleviate cost pressures.
2. Commit to safety and compliance: Make safety a core organizational value to reduce the likelihood of costly claims. Ensuring regulatory compliance, enhancing security, and training staff on best practices can help avoid major losses.
3. Strengthen workforce engagement: Develop a benefits strategy that aligns with employee needs. Using data-driven insights, tailor benefits to create an engaging work culture, reduce turnover, and ease recruitment pressures.
4. Maintain open communication with brokers: Engage your broker early to discuss insurance needs. Timely updates on operational changes allow brokers to find the most suitable coverage and avoid surprises at renewal.
In a complex environment, real estate companies that take proactive measures are better positioned to thrive. By focusing on risk management, employee well-being, and strategic collaboration with expert brokers, property owners can seize growth opportunities and build resilience for the future.
