The 2025 real estate mid-year outlook from Morgan Stanley Real Estate Investing (MSREI) highlights the resilience of commercial real estate amid a volatile macroeconomic environment. The report notes that while economic growth is expected to slow and become more uneven, certain sectors of real estate are showing signs of durability, especially those benefiting from long-term structural trends.
According to MSREI, several factors make this an appealing period for investment in real estate. There has been a significant re-pricing in the market, with values dropping by 20 to 25 percent across regions. This adjustment presents what the firm describes as an attractive entry point for investors. Additionally, positive core returns have been recorded across regions over the past four quarters, suggesting that the market may have reached its lowest point and could be entering a new upward cycle. A notable reduction in new construction starts is also expected to support underlying fundamentals going forward.
Tony Charles of Morgan Stanley Real Estate Investing stated:
"The current macroenvironment is volatile and uncertain with growth expected to moderate and diverge. Within this macro backdrop, real estate looks durable and downside-protected, particularly in sectors that are supported by long-term structural trends. Several factors suggest this is an attractive time to invest in real estate: meaningful downward re-pricing (20 to 25% across regions) which enables an attractive entry basis, positive core returns across regions for the past four quarters suggesting the market has bottomed and the next up cycle has begun, and significantly lower new supply due to the pullback in construction starts which will be supportive of fundamentals."
The report includes risk considerations regarding alternative investments such as private funds, noting their speculative nature and illiquidity. It warns that these instruments may not be suitable for all investors due to potential restrictions on redemptions or transfers and because they often use leverage or other strategies that can increase volatility.
Regarding Environmental, Social and Governance (ESG) strategies, MSREI cautions that performance may differ from broader benchmarks depending on market sentiment toward ESG-focused sectors or investments.
It also emphasizes risks inherent in real estate investing related to management skills or changes in tax laws.
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