Home Insights Real estate U.S. Real Estate Sector Report
Aerial view of a shipping yard at sunset.

U.S. Real Estate Sector Report

Spring 2025

April 16, 2025 | 25 min read
Download PDF

Sector conditions and outlook

Key:

Improving
Neutral
Deteriorating
Positive
Moderately positive
Neutral
Moderately negative
Negative
Apartment

The apartment sector is regaining momentum after a challenging operational year. Supply headwinds are beginning to subside, and concessions are giving way to rental inflation on newly signed leases as demand picks up. Valuations have stabilized, and the sector continues to attract liquidity from both private equity and debt investors.

Current conditions:
Outlook:
Hotel

The hotel sector experienced a modest retracing in 2024 compared to its postpandemic recovery. Occupancy rates remain generally healthy, but headwinds persist, keeping performance across most segments below pre-pandemic levels. These challenges could be further exacerbated in 2025 as booking windows shorten, driven by consumer uncertainty about the sustainability of the recovery.

Current conditions:
Outlook:
Industrial

The industrial sector has demonstrated resilience following a pullback in demand to pre-pandemic levels and peak levels of new supply for the cycle. While vacancy rates have risen in several key markets, the sector remains one of the most sought-after by investors. Demand is also showing signs of improvement, as e-commerce and thirdparty logistics (3PLs) are once again in expansion mode after re-evaluating their space needs over the past 12 to 18 months.

Current conditions:
Outlook:
Office

The much-maligned office sector is showing signs of life, though much work remains before a full recovery is realized. Elevated vacancy rates in key gateway markets and a lack of liquidity continue to challenge the sector, despite increases in office attendance. Lease economics will remain difficult for office landlords, and commodity office assets are likely to face ongoing headwinds. However, the limited new supply will benefit newer, high-quality assets in well-positioned locations.

Current conditions:
Outlook:
Retail

The retail sector has outperformed other sectors over the past year, largely due to the resilience of its non-discretionary subsectors. A lack of new development over the past decade, combined with improved flexibility from existing brick-and-mortar tenants, has helped elevate the sector post-pandemic. Consumers have remained resilient, though this will be tested in the coming months as economic growth slows under the pressure of new policies designed to boost domestic production and consumption. Despite these challenges, the sector enters 2025 on solid footing, with both debt and equity investors eager to pursue retail-focused strategies.

Current conditions:
Outlook:
Data centers

The data center sector is experiencing significant demand driven primarily by the expansion of AI applications, with vacancy rates in top North American markets below 2% and double-digit rent growth. Institutional investors are increasingly attracted to data centers, which are among the few sectors showing positive capital appreciation, despite challenges posed by high development costs and lengthy construction timelines.

Current conditions:
Outlook:
Life sciences

The sector is encountering substantial challenges after its robust performance during the pandemic. A lack of capital for start-ups has affected occupancy rates, especially with rapid development in many metropolitan areas. Although well-funded biotech and life sciences companies continue to perform well and draw tenant interest, the overall sector is facing difficulties. Additionally, hiring in life sciences roles has slowed, partly due to limited venture capital funding. Despite some improvement from its lowest levels, funding remains well below previous peaks.

Current conditions:
Outlook:
Single-family rental

The single-family and build-to-rent sectors are facing downward pressure on rental growth due to strong development activity in select metros. However, demand remains healthy, and vacancy rates are well within equilibrium, supporting rental inflation above broader consumer price increases. While moderating interest rates could improve affordability in the for-sale market, homeownership remains out of reach for many first-time buyers. The single-family rental sector continues to offer flexible housing options for those priced out of homeownership or seeking upgraded living spaces without the commitment of buying.

Current conditions:
Outlook:
Student housing

The student housing sector continues to exhibit solid fundamentals. However, it is becoming more competitive as much of the demand is now being met. Increased migration to southeastern states has generated optimism, particularly with students opting to stay closer to home. Despite these positive trends, we remain cautious about the sector due to moderating enrollment trends at four-year institutions.

Current conditions:
Outlook:

Source: Principal Real Estate, April 2025.

For our detailed perspective on the conditions and outlook for each sector, please download the full U.S. Real estate sector report.

Real estate
Disclosure

For Public Distribution in the United States. For Institutional, Professional, Qualified, and/or Wholesale Investor Use Only in other Permitted Jurisdictions as defined by local laws and regulations.

Risk considerations
Investing involves risk, including possible loss of principal. Past Performance does not guarantee future return. All financial investments involve an element of risk. Therefore, the value of the investment and the income from it will vary and the initial investment amount cannot be guaranteed. Potential investors should be aware of the risks inherent to owning and investing in real estate, including value fluctuations, capital market pricing volatility, liquidity risks, leverage, credit risk, occupancy risk and legal risk. All these risks can lead to a decline in the value of the real estate, a decline in the income produced by the real estate and declines in the value or total loss in value of securities derived from investments in real estate. Fixed-income investment options that invest in mortgage securities, such as commercial mortgage-backed securities, are subject to increased risk due to real estate exposure. Floating rate debt instruments are subject to credit risk, interest rate risk, and impaired collateral risk, which means that the value of the collateral used to secure a loan held by the fund could decline over the course of the loan. Credit risk refers to an issuer’s ability to make interest and principal payments when due.

Important Information
This material covers general information only and does not take account of any investor’s investment objectives or financial situation and should not be construed as specific investment advice, a recommendation, or be relied on in any way as a guarantee, promise, forecast or prediction of future events regarding an investment or the markets in general. The opinions and predictions expressed are subject to change without prior notice. The information presented has been derived from sources believed to be accurate; however, we do not independently verify or guarantee its accuracy or validity. Any reference to a specific investment or security does not constitute a recommendation to buy, sell, or hold such investment or security, nor an indication that the investment manager or its affiliates has recommended a specific security for any client account.

Subject to any contrary provisions of applicable law, the investment manager and its affiliates, and their officers, directors, employees, agents, disclaim any express or implied warranty of reliability or accuracy and any responsibility arising in any way (including by reason of negligence) for errors or omissions in the information or data provided. All figures shown in this document are in U.S. dollars unless otherwise noted.

This material may contain ‘forward looking’ information that is not purely historical in nature. Such information may include, among other things, projections, and forecasts. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the reader.

This material is not intended for distribution to or use by any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law or regulation.

This document is issued in:

  • The United States by Principal Global Investors, LLC, which is regulated by the U.S. Securities and Exchange Commission.
  • Europe by Principal Global Investors (Ireland) Limited, 70 Sir John Rogerson’s Quay, Dublin 2, D02 R296, Ireland. Principal Global Investors (Ireland) Limited is regulated by the Central Bank of Ireland. Clients that do not directly contract with Principal Global Investors (Europe) Limited (“PGIE”) or Principal Global Investors (Ireland) Limited (“PGII”) will not benefit from the protections offered by the rules and regulations of the Financial Conduct Authority or the Central Bank of Ireland, including those enacted under MiFID II. Further, where clients do contract with PGIE or PGII, PGIE or PGII may delegate management authority to affiliates that are not authorised and regulated within Europe and in any such case, the client may not benefit from all protections offered by the rules and regulations of the Financial Conduct Authority, or the Central Bank of Ireland. In Europe, this document is directed exclusively at Professional Clients and Eligible Counterparties and should not be relied upon by Retail Clients (all as defined by the MiFID).
  • United Kingdom by Principal Global Investors (Europe) Limited, Level 1, 1 Wood Street, London, EC2V 7 JB, registered in England, No. 03819986, which is authorized and regulated by the Financial Conduct Authority (“FCA”).
  • United Arab Emirates by Principal Global Investors LLC, a branch registered in the Dubai International Financial Centre and authorized by the Dubai Financial Services Authority as a representative office and is delivered on an individual basis to the recipient and should not be passed on or otherwise distributed by the recipient to any other person or organisation.
  • Singapore by Principal Global Investors (Singapore) Limited (ACRA Reg. No. 199603735H), which is regulated by the Monetary Authority of Singapore and is directed exclusively at institutional investors as defined by the Securities and Futures Act 2001. This advertisement or publication has not been reviewed by the Monetary Authority of Singapore.
  • Australia by Principal Global Investors (Australia) Limited (ABN 45 102 488 068, AFS Licence No. 225385), which is regulated by the Australian Securities and Investments Commission and is only directed at wholesale clients as defined under Corporations Act 2001.
  • This document is marketing material and is issued in Switzerland by Principal Global Investors (Switzerland) GmbH.
  • Hong Kong SAR (China) by Principal Asset Management Company (Asia) Limited, which is regulated by the Securities and Futures Commission. This document has not been reviewed by the Securities and Futures Commission.
  • Other APAC Countries/Jurisdictions, this material is issued for institutional investors only (or professional/sophisticated/qualified investors, as such term may apply in local jurisdictions) and is delivered on an individual basis to the recipient and should not be passed on, used by any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law or regulation.

Principal Global Investors, LLC (PGI) is registered with the U.S. Commodity Futures Trading Commission (CFTC) as a commodity trading advisor (CTA), a commodity pool operator (CPO) and is a member of the National Futures Association (NFA). PGI advises qualified eligible persons (QEPs) under CFTC Regulation 4.7.

Principal Funds are distributed by Principal Funds Distributor, Inc.

© 2024 Principal Financial Services, Inc. Principal®, Principal Financial Group®, Principal Asset Management, and Principal and the logomark design are registered trademarks and service marks of Principal Financial Services, Inc., a Principal Financial Group company, in various countries around the world and may be used only with the permission of Principal Financial Services, Inc. Principal Asset Management℠ is a trade name of Principal Global Investors, LLC. Principal Real Estate is a trade name of Principal Real Estate Investors, LLC, an affiliate of Principal Global Investors.

MM11889-07 | 10/2024 | 3910982-122025