From the interest rate environment, office vacancy levels and shortage of developable land to a new federal administration and the ongoing debate about decarbonizing buildings, the commercial real estate industry may face a dizzying array of challenges and opportunities in 2025.
The arrival of a new federal administration and transition to a profoundly different policy platform could have a range of impacts on the commercial real estate sector.
“I am hugely positive and exhilarated about commercial real estate in 2025 because we will have a real estate developer as President of the United States,” said Stuart Kaplow, a sustainability and green real estate attorney. “There might be a negative somewhere in this situation, but I’m not aware of it.”
The first Trump administration reversed, revoked or eased more than 100 environmental regulations, “so I suggest the incoming administration is going to do more than that,” Kaplow said.
Regulatory decisions, tax policies and other initiatives could create a more business-friendly environment, especially for CRE companies “because the President understands the issues facing commercial real estate,” he said.
Economist Anirban Basu, however, cautions that some promised Trump administration policies could fuel economic challenges. Basu, Chairman and CEO of Sage Policy Group, points to three policy platforms that are inflationary: tax cuts, tariff increases and deportation.
The imposition of tariffs would drive up prices. Meanwhile, tax cuts would pump more money into the economy and also stoke inflation.
Deportations could drive up labor and service costs in some industries, including commercial real estate, Basu said. “We know that millions of undocumented people work in our economy, including in construction, building maintenance, landscaping and other occupational categories pertinent to commercial real estate.”
Basu doubts that the Trump administration will conduct the scale of deportations promised, due to the high cost and complexity of such an undertaking. However, even more limited deportations could impact labor costs and have a chilling effect on some foreign workers, convincing them to remove themselves from the labor force.
The administration, he noted, could also crack down on the undocumented workforce by cracking down on employers. Specifically, the federal government could conduct more I-9 audits of employers (to ensure all their workers are legal) and impose stiffer fines on employers who violate employment law.
Due to the Trump administration approach to taxes, tariffs and deportations, “inflation might be set to re-accelerate in 2025 and that would set the stage for higher interest rates for longer,” Basu said.
“Office vacancy remains a front-and-center issue,” said Morgan Gilligan, Vice President-Division Manager, Mid-Atlantic Commercial with Stewart Title Guaranty Company. “While folks are slowly starting to return to some sort of office environment — whether it’s full, hybrid or hoteling — we really need folks back in the office full time to support buildings and surrounding retail.”
Shifting work patterns are already producing some gains in the office market.
“We are seeing vacancy in suburban office at about 20 percent but have seen steady leasing activity in that product,” said Scott Dorsey, Chairman and CEO of Merritt Companies. “Most office tenants are looking for smaller spaces than in the past, but with no new office buildings likely to be built during the next few years, we think the fundamentals will improve significantly, making a strong contribution to net operating income.”
“I am really excited about seeing the flight to quality continue to play out in areas where value lies in the destination itself,” said Kristi Smith, President of the Maryland Region of Howard Hughes Holdings.
In the Merriweather District, which has seen strong leasing, “we’re providing best-in-class services and unique amenities in the building and the neighborhood to meet the changing needs of what tenants are looking for in a modern-day workplace,” Smith said.
That approach to development is also helping to address the biggest leasing challenge facing CRE professionals, namely “adapting to the change in corporations’ needs as people are increasingly returning to the office,” she said. “Now more than ever, corporations are weighing what amenities and services are most valuable to their employees to ease this change.”
Certain submarkets, however, are not faring as well. Baltimore’s Central Business District will experience a sharp jump in an already high vacancy rate once T. Rowe Price moves to Harbor Point this year.
Meanwhile in Washington and the D.C. suburbs, “we need the government to enforce government employees to return to the office,” Gilligan said.
If implemented, the Trump administration’s promised return-to-the-office policy would put more people back into office buildings and commercial districts. The number of people going back into government offices full time, however, could be depressed by union and employment contracts, by individuals opting to switch to non-government jobs, and by the administration’s promise to make major cuts in the size of the civil service.
The office market — and high-vacancy buildings in particular — are facing one other challenge: persistent high interest rates.
“Heretofore, my very strong sense is that banks have been willing to work with office building owners to extend their debt service payments, to allow these buildings to stabilize in terms of occupancy and rental revenue,” Basu said. “The expectation has been that things are going to get better, that society will continue to normalize post-pandemic, that people will come back to the office, or, absent that, there’ll be enough growth to offset the fact that people work remotely more frequently.”
That business philosophy, however, also included the belief that interest rates would fall and those cuts would make refinancing easier, thus preventing delinquencies and defaults.
“With interest rates staying higher for longer, bankers don’t have that kind of flexibility to refinance,” Basu said. In buildings that continue to experience high vacancy rates, “the value of the underlying collateral is declining. That means the longer banks wait to require payments on these loans, the more likely it is that they will suffer some kind of loss themselves…
“That’s why I am pessimistic [about the office sector] in 2025 and, even more so potentially, about 2026,” Basu said. “Instead of extending and pretending, the time will come to settle up. I expect to observe a bit of pain among many property owners and investors… Some owners might just walk away from these buildings, saddling the banks with losses.”
Other segments of commercial real estate posted a strong 2024 and are projected to perform well in the coming year.
After witnessing strong leasing last year in Phase 1 of the 750,000-square-foot White Marsh Interchange Park, Merritt is preparing to begin construction this year of another three buildings, totaling 270,000 square feet, Dorsey said. The company also plans to begin construction this spring of the Beltway Interchange Park at Route 1 and I-695 in Arbutus. That two-building project will total 132,400 square feet.
“As pleased as we are to be adding new inventory in a tight market, we also expect that occupancy and rental rates will continue the strong growth we’ve seen over the last two years,” Dorsey said.

White Marsh Interchange Park. Photo courtesy of Merritt Companies.
Merritt’s flex space in central Maryland, he added, is currently about 95 percent occupied. High demand for flex space in the greater Baltimore area made the White Marsh and Beltway parks feasible even though Merritt had to demolish existing buildings on those sites and replace them with new construction.
St. John Properties predicts similarly strong, sustained demand for its flex and mixed-use properties.
The company is on track to deliver about 700,000 square feet of new product in 2025 (the same amount it delivered last year) “and 2024 was extremely successful from a leasing perspective,” said Sean Doordan, Senior Executive Vice President, Acquisitions and Growth. “The beauty of building speculative flex is we have the building ready and can real-time accommodate whatever need a client may have.”
Given the versatility and success of our flex product, we have strategically focused on expanding our portfolio in Carroll, St. Mary’s and Wicomico counties, Doordan said.
Maryland’s industrial market is also projected to remain strong in 2025.
“One of the trends relevant for Maryland’s industrial real estate industry is the expectation that import volumes for East Coast ports will bounce back after ratification of the International Longshoremen’s Association contract,” said Danielle Schline, Senior Vice President and Investment Officer at Prologis. “In 2024, import volumes grew at less than half the rate for East Coast ports (approximately 10 percent) in comparison to West Coast ports (approximately 25 percent). We expect this dynamic to reverse in 2025.”
In addition, surveying, soil sampling and other pre-construction work on the rebuilding of the Francis Scott Key Bridge is projected to begin this January, kicking off a massive, four-year, construction project.
“Generally, leasing activity is expected to pick up in 2025 as macroeconomic uncertainty – such as potential interest rate volatility – eases,” Schline said. “We expect vacancy rates to plateau then gradually decrease as deliveries continue to slow.”
Despite challenges with financing, land availability and moderate growth in the economy, 2025 is presenting CRE developers and investors with some interesting opportunities.
“Within the Mid-Atlantic region, I am optimistic on continued forward momentum in transaction volume,” Gilligan said. “2023 was a challenging year. We saw volume increase in 2024 and feel that will continue in 2025. What is still missing is the velocity that we saw in ’19, ’20 and ’21… It will be 2026 where we see velocity back in CRE. Areas of growth will continue to be industrial/flex, data centers, energy and healthcare.”
Interest rates will be key to transaction momentum, Gilligan said.
“We have had a couple of interest rate cuts in 2024 and feel that we will have a couple more reasonable cuts in 2025,” he said. “I think that large commercial banks will return to provide debt financing, which is desperately needed in CRE.”
MAG Partners sees signs that the CRE market will recover in 2025, said Jennifer Hearn, Director of Development.
“We’re seeing healthy signs across sectors, with supply and demand balance returning to multi-family, transaction volume increasing across the board and early indicators that cap rates will plateau,” Hearn said.
Those positive trends are based partly on increasing stability in the economy and the CRE market as the country settles into post-pandemic norms, she said. “People now feel that they understand the new layout of the market that’s emerged from the pandemic, and that’s a recipe for renewed growth and strategic investment.”
MAG Partners anticipate that Baltimore Peninsula will benefit from that improving climate. Total leasing of new buildings onsite surpassed 50 percent in 2024 and the company plans to open an additional 190,000 square feet of office and 75,000 square of retail space this year. Baltimore Peninsula’s two dedicated residential buildings are fully stabilized and the Locke Landing development is currently adding townhomes and two multi-family buildings to the area.
“Baltimore City’s economy is on a strong footing and that’s an ideal scenario for continued real estate investment,” Hearn said.

Baltimore Peninsula. Photo courtesy of MAG Partners.
MCB Real Estate describes its 2025 growth opportunities as exciting. Those include optimizing 15 million square feet of existing properties, advancing 4 million square feet of transformational projects and delivering 700,000 square feet of new product. But that growth will not be easy.
“The biggest challenges include managing high construction and financing costs due to elevated interest rates and inflation. Those factors make underwriting to acceptable risk-adjusted terms more difficult,” said Michael Trail, Chief Investment Officer. “Rising operational expenses – like real estate taxes, payroll and insurance — are also outpacing rent growth, further straining margins.”
To meet those challenges, MCB has committed to attracting diverse capital and forging partnerships with local governments and other organizations.
“Flexibility is everything,” Trail said. “The past year reinforced the importance of being able to pivot when circumstances change. We’ve also leaned heavily into longer-term financing strategies, which proved invaluable on several projects.”
In its annual projections, Prologis predicted that groundbreakings for new logistics buildings will decrease in 2025 and remain 15 percent below normal construction levels globally.
“For Prologis in 2025, speculative development will remain selective, targeting high-demand locations with minimal availabilities and competition,” Schline said.
For some Maryland-based CRE companies, the majority of attractive development options in 2025 may lay beyond the state line.
Although the bulk of St. John Properties’ portfolio remains in Maryland, much of its growth strategy is focused elsewhere.
“Our growth as a company is coming and will continue to come more so from outside of Maryland,” Doordan said.
The shortage of land along with the cost and complexity of doing new developments in central Maryland is contributing to out-of-state expansions by St. John, Merritt and other companies.
“In markets where there is more available land — like Richmond, Virginia, Raleigh-Durham, North Carolina, Jacksonville, Florida — we can buy land for maybe $15 a square foot,” Dorsey said. “For our development in White Marsh, we effectively paid $50 a foot.”
In those states, he added, “people understand they need to have economic growth, they need to grow their tax base and they need to support opportunities for businesses.”
“When we pick markets proactively to move to, we absolutely take into account the business-friendly nature which typically impacts our ability to deliver our product,” Doordan said.
St. John Properties also carefully trains professionals to open up new offices in new markets for the company through its Partner in Training program.
In Anne Arundel County, “the development landscape is evolving in exciting ways given most remaining development sites are not the most ideal. This situation challenges developers to think creatively and innovatively,” said Wesley MacQuilliam, Chief Operating Officer of Anne Arundel Economic Development Corporation (AAEDC).
That shift, however, is paving the way for transformative redevelopment opportunities, MacQuilliam said.
“Along the Riva Road corridor, numerous development projects and mixed-use developments are taking shape,” he said. “Additionally, the county is actively pursuing grants and funding to advance the revitalization of the Glen Burnie Town Center… And the county council just passed legislation to streamline mixed-use projects and provide incentives, fostering continued growth and modernization.”
Amid the increase in data centers and high-tech buildings and the push to decarbonize the built environment, the CRE world is facing another challenge.
“I think the biggest business issue, the sleeper issue of the year in Maryland may be electricity,” Kaplow said.
On the legislative front, state legislators and officials are working to implement the Climate Solutions Now Act of 2022, including adopting a new Building Energy Performance Standard (BEPS) that would lay out a path to decarbonizing the energy systems in commercial buildings.
“Maryland’s plan is to ration electricity under the acronym EUI, energy use intensity,” Kaplow said.
That approach would require buildings to restrict their energy consumption to certain levels depending on their uses. Kaplow and others have argued that EUI is preempted by federal law.
“Maryland is also looking at new clean heat regulations,” expanded electric vehicle charging infrastructure and supplying more clean energy to the electric grid, he said. “All of this is going to have a huge dollar cost and tremendously disadvantage Maryland’s economy.”
The state, he noted, is facing challenges and new headwinds in implementing those policies. Those include the fact that Maryland imports 40 percent of its electricity just to meet current needs, the high cost and long delays in developing renewable energy projects such as offshore wind, a state budget deficit that will limit new spending initiatives, and a new federal administration that will be less supportive of clean energy.
Kaplow predicts those circumstances may prompt the state to moderate its approach to decarbonization. In addition, litigation commenced in January by NAIOP Maryland together with other CRE trade groups and residential communities will likely alter BEPS and the move to all-electric buildings.
Meanwhile on the commercial front, CRE owners are facing growing requirements from tenants for clean energy and high efficiency systems.
To meet those requirements, Prologis has been integrating renewable energy solutions into its tenant services.
“With more tenants implementing net-zero goals, the focus will increasingly shift to integrating renewable energy and improving building design standards,” Schline said. “Innovations like net-zero-ready facilities, rooftop solar and electrification of fleets will play central roles.”