Investors still view commercial real estate in the United States as a top outlet for their investment dollars. At the same time, commercial real estate professionals are optimistic about the state of the industry in the early stages of 2025.

Those are two key takeaways from the 2025 Commercial Real Estate Outlook Report released earlier this year by Coldwell Banker Commercial.

We spoke to Dan Spiegel, senior vice president and managing director of Coldwell Banker, about his company’s outlook report and the state of the commercial real estate industry. He, too, was optimistic about where commercial real estate stands today.

Here is some of what Spiegel had to say about the industry.

The Coldwell Banker Commercial outlook report mentions that leasing activity is improving in smaller office spaces. What is behind this improvement?
Dan Spiegel: There are a couple of things going on. Office leases are long-term commitments. Over the last year, five- or 10-year office leases have been coming up for renewal. Companies are still not entirely sure what is happening with their workforce and how often their employees will come into the office. That is resulting in a higher volume of smaller leases.

At the same time, smaller users like law firms and medical offices didn’t downsize much during the pandemic or after it. They are more willing to commit to longer-term office leases today. They are more likely to renew their space without worrying too much about how many of their employees are going to come to the office. They already know this. A lot of our presence around the country is in secondary and tertiary markets where there is more local decision-making from tenants and less corporate-level decision-making.

The report also mentions that leasing activity is stronger, too, in smaller offices in suburban locations. What is behind that?
Spiegel: It really depends on where those suburban offices are. Some suburban offices are seeing stronger leasing activity. Others aren’t. It’s more about the quality of the office space versus whether it is suburban or urban. The flight to quality is real. Companies are deciding that if they are renting space, they might as well rent nicer space.

Companies want to convince their employees to come back to the office. One way to do this is by providing them a higher quality space to work in. That is true in both downtown and suburban locations. The nicer, higher-quality buildings are doing relatively well, both in suburban and downtown locations. But it doesn’t mean that all suburban locations are doing well. It has to do with the quality of the space.

There are some positive signs out there in the office sector. Some older, outdated suburban office properties are being redeveloped. That’s a good sign.

We’ve heard a bit about converting outdated office space to other uses such as multifamily. That can be tricky and expensive, though, right?
Spiegel: There was an initial hope that many office buildings could be used to help solve the crunch we’re seeing for housing. But not all office buildings can be converted into apartments. A 1980s office building in a suburban office park is not a desirable place to live. It doesn’t have the attractiveness of, say, a 1920s or 1930s office building in the middle of downtown. People would like to live in a cool vintage building. There is potential there. But not so much with the basic suburban office properties.

How important are amenities when companies are striving to bring workers back to the office?
Spiegel: Amenities are absolutely important. Tenants and building owners are upping the game in the amenities war. Building owners have to think of the amenities that make a resort so attractive. They need to make their office space attractive enough so that people will want to be there and stay in the building. Amenities have been a driving force for a long time now. They are important if you want to attract and retain tenants.

The Coldwell Banker Commercial report also mentioned that the retail sector, despite some negative headlines, has been resilient since the start of the pandemic. Can you talk about that?
Spiegel: We are at the five-year anniversary of when COVID really took hold here. The hospitality and hotel sectors were all doom and gloom. We were worried about retail, too. But retail has been pretty darn resilient. Well-located, desirable retail centers are in high demand today. It’s the same thing that is true about real estate in general: location, amenities and demographics matter. If a retail center is in the right location, there is leasing demand for it.

That said, there are retailers that will come and go. There are malls that were once very popular that have come and gone. Others, like Old Orchard Mall in Skokie, Illinois, have reinvented themselves.

The demand for grocery-anchored retail remains strong. People want to go out.

Mixed-use retail is seeing a lot of leasing activity, too, right?
Spiegel: Retail centers aren’t strictly retail today. Retail centers include physical therapy, outpatient medical office or a light office use that has some foot traffic. Retail centers are no longer only about selling goods. It’s about services, too. Just look at medical offices. They are a good fit for retail centers because retail centers have abundant parking.

How about experiential retail? Are consumers still interested in that type of retail?
Spiegel: We saw earlier in the COVID recovery that people might not be keen on going back to the office but that they are happy to go out and have fun. That trend has not stopped. Because so many people are working from home they want to get out of the house and do something, be it dining or an experience. But experiential retail is just like all retail: Some will come and go. Things will be desirable and then they will fall out of favor. It is the natural flow of retail and retail uses.

Was there anything in Coldwell Banker Commercial’s forecast that surprised you?
Spiegel: I was surprised at the optimism that people have for 2025. As we approached the end of last year, there was so much uncertainty. That kills momentum in commercial real estate. Once the elections were over, people started making real estate decisions again without hesitation.

Even in unsure economic times, real estate is a hard asset. If there is a threat in the economy, people are driven to hard assets like commercial real estate. Even given that, I was surprised that people were so optimistic about commercial real estate in 2025. The weather can change quickly, but I view that optimism as positive. It shows that real estate is still desirable.

Commercial real estate is still attractive to investors, right?
Spiegel: Yes. And the United States is always the number one destination for real estate investors. Real estate is the steady asset. Now, not all commercial sectors are performing as well. Industrial was the darling for five years through 2024. It’s not undesirable now, but it has cooled down a bit. Multifamily is now desirable because of the challenges people face in the for-sale housing market. If people can’t afford a down payment or the higher mortgage interest rates of today, and if housing prices are higher, they will keep on renting. That sector remains a bright spot.