Why you should consider real estate investments in 2025

Investing.com — Real estate markets are regaining momentum as favorable macroeconomic conditions and recent data suggest compelling opportunities for investors, according to analysts.

Falling U.S. Treasury yields this week signaled growing investor confidence in the Federal Reserve’s potential to continue cutting interest rates. This optimism is reflected in the housing market, where pending home sales rose for the third consecutive month in October. Contract signings increased 2% from the previous month and surged 6.6% year-over-year, according to the National Association of Realtors.

The steady recovery in the U.S. housing market could mark the beginning of a global revival in real estate investment. Declining capital costs, improved debt availability, and significant private capital ready for deployment are driving this trend, analysts at UBS said.

Supply Constraints Boost Prospects
Both commercial and residential construction remain constrained by stricter regulations and higher costs since the pandemic, creating a scarcity of high-quality properties. As interest rate cycles shift, supply shortages combined with strong demand are expected to lower vacancy rates and fuel rental growth, potentially leading to significant capital appreciation.

UBS highlights logistics properties, data centers, and telecommunication towers as standout segments within commercial real estate, particularly in the U.S. and Europe, driven by e-commerce and artificial intelligence trends. In residential real estate, multi-family housing, senior living, and student housing are identified as promising growth areas.

In private markets, core and core-plus real estate managers are well-positioned to generate income while capitalizing on opportunistic acquisitions. Direct real estate investments in Canada, the U.S., and continental Europe are forecasted to be especially lucrative, driven by robust rental growth and falling interest rates.

Despite these positive signs, UBS urges caution in the UK residential market, where affordability challenges persist. Similarly, mainland China remains a risky prospect despite recent stimulus measures aimed at stabilizing the sector.

While UBS anticipates a broader real estate recovery in 2025, they emphasize the importance of careful evaluation. Investors should consider sector fundamentals and regional dynamics to navigate opportunities effectively. For those prepared to manage regional and sector-specific risks, the current environment offers a promising entry point into the recovering real estate market.