Commercial real estate (CRE) investors typically adopt a long-term perspective, and while 2020 significantly disrupted market predictions, the sector has demonstrated remarkable resilience.1 As of mid-2025, the initial concerns have largely subsided, with transaction activity rebounding and a clearer picture emerging of which pandemic-driven changes are temporary versus permanent.2
“More than a year after the pandemic started, we realize that things turned out better than we initially anticipated,” said Lindsay Dunn, head of Real Estate Banking for City National Bank. “The quick rollout of the vaccine and reopening of the economy resulted in more transaction activity than expected in 2021.”
Michael Kazemzadeh, regional manager of City National’s real estate group, notes that “While some property sectors have felt pain from the pandemic, overall commercial real estate has been generally resilient.” He acknowledges, however, that “There are some headwinds to watch as the economy transitions after the 2020 shutdown, to be sure.”
Here’s an updated look at market hazards and opportunities as of mid-2025, incorporating insights from recent market reports, particularly concerning the Houston, Texas area:
Revised Economic Forecasting
Economists continue to refine their forecasts for a post-pandemic commercial real estate market. The Mortgage Bankers Association (MBA) anticipated continued economic recovery in 2021, with significant GDP increases predicted for the latter half of that year.3
While commercial and multifamily mortgage loan originations saw a year-over-year decline in Q1 2021, this decrease was less severe than during the peak of the shutdown. Jamie Woodwell, MBA’s vice president of commercial real estate research, noted that “Industrial and multifamily properties continue to attract the greatest interest, and retail and hotels saw the largest declines.”4 As the economic recovery progresses, investors and lenders are gaining clarity on long-term trends.
Dunn confirms that industrial and multifamily sectors remain investor favorites, while office, retail, and hospitality continue to experience lingering pandemic impacts. The distress of higher vacancy rates and unpaid rents, though widespread initially, has varied in its short and long-term impact across regions and property sectors.
Current Market Performance and Outlook by Sector
Industrial
Investor confidence in the industrial sector remains strong, particularly in the development of large-scale warehouses (500,000+ sq ft).5 This robust performance is largely attributed to the sustained growth of e-commerce. Industrial properties are attracting significant investor capital across the U.S., including key distribution hubs like California’s Inland Empire and coastal port markets.6 Kazemzadeh highlights the “abundance of capital, especially institutional grade capital, that needs safety and the preservation of wealth,” finding that industrial real estate currently provides this opportunity.7
- Houston Specifics (Q1 2025): Houston’s industrial market continues to show resilience.8 While vacancy rates are rising due to increased speculative construction, leasing activity remains strong. Owner-user activity is particularly high for buildings under 30,000 sq ft, where supply is limited. Tenants are increasingly scrutinizing functionality, operating costs, and features like ceiling height, power availability, and truck access. Concessions and tenant improvement allowances are becoming more common. New construction has moderated, and speculative developers face challenges in financing new projects, which may limit new supply in 2026 and beyond. Overall, Houston’s industrial market is entering a more balanced phase, supported by population growth, infrastructure investment, and favorable business conditions.9
Multifamily
Government stimulus, landlord-tenant rent agreements, and an uneven economic recovery minimized disruption for many multifamily investors, particularly in Class A buildings. Kazemzadeh observed that initial concerns about rent collection largely abated, with clients experiencing only minimal downturns. While high-end coastal markets face some pressure on occupancy and concessions, migration patterns are driving increased investor interest in areas like California’s Inland Empire and secondary markets throughout the Southwest (e.g., Las Vegas, Phoenix). Dunn notes that rent concessions in urban core locations like Los Angeles and New York have decreased significantly from as high as three months to around one month.
- Houston Specifics (June 2025): Houston’s multifamily market shows stability, with modest occupancy increases and flat rents, and less construction compared to a year ago. Overall apartment occupancy rose from 88.3% to 89.0% between June 2024 and June 2025. Class A apartments are driving absorption, while other classes are seeing unit shedding. New construction is tapering off, with fewer units underway compared to the previous year, though many units are still in the proposal stage.10 Rents have seen slight declines in western and central areas but increased in eastern regions. Houston boasts the highest occupancy rate among major Texas markets (89.0%) and the shallowest drop in rents (0.8%). Demand remains strong due to job creation, population inflows, and a more affordable cost of living, particularly in suburban areas.
Offices
The pandemic-driven flight to the suburbs initially impacted urban commercial real estate, but a movement back to cities is beginning. Dunn anticipates a prevalence of hybrid work models despite companies announcing return-to-office dates. Given that office leases typically span 3 to 15 years, the long-term impact will unfold over time. An increase in sublet market supply could indicate an overall increase in supply in the coming years. There’s a noticeable “flight to quality,” with greater interest in Class A buildings that have invested in amenities like enhanced air filtration and no-touch entrances. Kazemzadeh notes that brokerage communities are “bullish on a faster-than-expected return to offices,” drawing parallels to the unexpected return to high-rise offices after 9/11.
- Houston Specifics (Q1/Q2 2025): Houston’s office market is experiencing a bifurcated recovery. “Trophy” and Class A+ assets are leading, driven by the “flight-to-quality” trend as companies seek premium spaces to attract talent. Overall vacancy remains elevated, hovering around 26.1% in Q2 2025, largely due to a decade of negative net absorption. While Q1 2025 saw some positive absorption, overall leasing activity remains below historical averages.11 New construction is significantly constrained by oversupply and lack of rent growth. Medical office projects account for a notable portion of current construction and are highly preleased, mitigating new supply impact. Occupancy in Houston averages around 60%, higher than some comparable metros. Tenants are scaling back space or relocating to newer, amenity-rich buildings upon lease renewal.
Retail
The retail sector has faced short-term challenges (e.g., limited rent collection from closures) and long-term headwinds that predated the pandemic. “Grocery-anchored, needs-based retail did very well during the pandemic,” said Dunn, proving to be a resilient segment.12 Experiential retail, which draws people to town centers and malls for events, is seeing a resurgence as people desire to get out again.13 However, high vacancy rates persist in many retail sites due to businesses that didn’t survive the shutdown. Kazemzadeh notes that “Investors are reluctant to invest in retail right now even though there may be opportunities because this sector is under pressure.”
- Houston Specifics (Q1/Q2 2025): Houston’s retail market shows remarkable stability despite signs of cooling. The vacancy rate in Q1 2025 was 5.4%, relatively low historically. Slowed new construction (down 29% quarterly and 53% annually) combined with sustained demand, particularly in growing suburban areas like The Woodlands, Conroe, and Sugar Land, keeps the market balanced. While leasing activity has slowed, it’s not severe enough to disrupt this balance. Average asking rents are near record highs ($20.87 per square foot in Q1 2025) and are expected to increase further due to low availability and reduced new supply. Retailers are increasingly blending online and in-store experiences, particularly in grocery, driving demand for spaces with pick-up/delivery infrastructure.14
Senior Housing
Senior housing faced pressure during the pandemic due to health concerns, but “most people feel the worst is behind them,” according to Kazemzadeh. With most existing and potential renters vaccinated, investors are more comfortable with the sector. The primary driver for investor interest remains demographics, with Kazemzadeh anticipating “another wave of pent-up ‘Baby Boomer’ demand for senior housing” over the next five years, creating significant opportunities.
- Houston Specifics (Q1 2025): Senior housing occupancy has improved for 15 consecutive quarters, reaching 87.4% in Q1 2025.15 Absorption rates are at a decade high, consistently outpacing inventory growth. New inventory growth has decreased significantly, and units under construction have declined for thirteen straight quarters, reaching the lowest level since Q2 2013. Average asking rents for senior housing exceeded $5,500 in Q1 2025, a 4.0% increase year-over-year, though the pace of growth has decelerated.16 The combination of high demand, historically low supply growth, and robust rent growth positions senior housing as a potentially highly profitable asset class.17
Self-Storage
The self-storage sector is performing exceptionally well, with rising rents and declining vacancies, as noted by Dunn. Kazemzadeh stresses that long-term fundamentals for self-storage are strong, provided markets are not overbuilt. These deals typically take three to five years to stabilize, and experienced investors recognize self-storage as a long-term investment requiring sound supply fundamentals and barriers to entry.
- Houston Specifics (mid-2024 outlook): Houston is a key player in the national self-storage sales market, with substantial square footage traded over the past five years.18 Despite a decline from the 2022 peak, investor interest remains strong. Houston boasts the largest self-storage inventory in Texas, at 6.8 sq ft per person, near the national benchmark. Average monthly costs for a 10’x10′ unit are below the national average. Demand remains robust, fueled by ongoing migration and population growth, ensuring Houston remains a key market as the sector stabilizes post-pandemic boom.19 New supply is consistently met with strong absorption.
Land
The rise of e-commerce has revitalized demand for land, specifically for truck storage rather than traditional development.20 Kazemzadeh notes a shift away from commercial banks financing high-risk, long-timeline land development since the Great Recession.21 However, transactions for truck storage are now emerging, often supported by major companies like Amazon leasing land, offering a “more direct and lower risk opportunity for investors.”
Long-Term Outlook for CRE Investors
The pandemic accelerated existing trends, such as the hybrid work model and the growth of e-commerce, both of which are expected to continue expanding. These shifts, coupled with high migration rates (driven by remote work capabilities and family proximity desires), necessitate new strategies for CRE investors. For instance, more multifamily development is now occurring in secondary cities and suburban markets rather than exclusively in large coastal urban centers.
The fundamental drivers of commercial real estate – supply, demand, and demographics – continue to indicate opportunities for discerning investors. However, careful planning with experienced wealth advisors is paramount in navigating these evolving market dynamics. City National Bank encourages clients to review their investment portfolios with an advisor to address current market conditions.22