At the Frederick County Building Industry Association’s January Membership Meeting, NAHB President & CEO Jim Tobin and NAHB Chief Economist Dr. Robert Dietz highlighted economic forecasts, workforce challenges, and policy impacts that will influence commercial real estate investors, business owners, and developers in the coming year. 

Here are VCRE’s takeaways and how we interpret these trends for the Frederick commercial real estate and property market. 

1. Interest Rates and Economic Growth: A Market Shift

The construction industry is facing slower economic growth, with GDP forecasted to grow at 1.7% in 2025​. This impacts commercial real estate by influencing investment decisions and property values.

Lower Interest Rates, Higher Demand

  • The Federal Reserve is expected to ease interest rates, making borrowing more affordable.
  • Lower rates will increase demand for commercial properties, especially as investors look to finance new developments.
  • The multifamily sector is experiencing a slowdown, but single-family and mixed-use developments are expected to see a resurgence.

For commercial property investors, this means a window of opportunity to secure financing at lower costs. Business owners looking to lease space should also anticipate rising rental demand as financing conditions improve.

2. Workforce Challenges in Construction and CRE

A persistent issue in the building industry is the shortage of skilled labor. While overall job openings in the economy are declining, the construction sector continues to see high worker demand.

What This Means for CRE:

  • Higher construction costs due to labor shortages will impact new commercial developments.
  • Increased demand for workforce housing—as businesses expand, housing for workers becomes a critical factor in site selection.
  • Longer project timelines—developers must factor in potential delays due to labor shortages.

Business owners and investors should plan ahead, securing properties in strategic locations where the workforce is readily available.

3. The Boom in Manufacturing Construction

One of the biggest shifts in construction spending is the rapid increase in manufacturing construction. Spending in this sector has grown 14x since 2021, largely due to reshoring efforts and incentives for domestic production.

How This Affects Commercial Real Estate:

  • More demand for industrial space—warehouses, distribution centers, and logistics hubs will be in high demand.
  • Increased need for commercial hubs—as manufacturing expands, supporting businesses such as retail, office, and service industries will follow.
  • Opportunities in secondary markets—areas like Frederick County may see growth as businesses look for locations outside major metropolitan areas.

Industrial properties will be an attractive asset class for investors in 2025. Business owners should also explore opportunities to co-locate near manufacturing hubs to improve supply chain efficiency.

4. Regulatory Changes and Construction Costs

Regulatory costs continue to rise, adding pressure on both the residential and commercial real estate sectors. The cost of compliance per new home has increased by 11% from 2016 to 202, with factors such as zoning requirements, building codes, and land use restrictions driving up prices.

Impacts on Commercial Real Estate:

  • Higher development costs for new commercial properties.
  • Potential zoning changes that could create new opportunities or barriers.
  • More demand for adaptive reuse projects—repurposing existing properties may become a more cost-effective alternative to new construction.

Investors and developers should stay informed about local policy changes and explore strategies to mitigate rising regulatory costs.

5. Political and Policy Considerations

​With the political landscape adjusting to the first 100 days of our new leadership in office, much is still uncertain, but we are keeping our attention on potential changes in tax laws, energy codes, tariffs, and workforce policies.

Key Policy Factors to Watch:

  • Tax incentives for real estate development—the fate of the Low-Income Housing Tax Credit (LIHTC) could impact affordable housing availability.
  • Energy efficiency requirements—new building codes could increase costs but may also provide opportunities for tax credits.
  • Workforce policies—efforts to address labor shortages could influence the construction pipeline.

For businesses and investors, staying proactive in advocacy efforts and understanding upcoming legislation will be crucial for making informed real estate decisions.

Looking Ahead: CRE Strategies for 2025

Given these trends, here’s how commercial real estate professionals can prepare:

  • Investors: Consider industrial and mixed-use developments as demand for logistics and commercial hubs increases.
  • Business Owners: Lock in leases now before interest rate cuts drive up rental demand.
  • Developers: Plan for longer construction timelines and higher costs due to labor shortages and regulations.
  • Municipal Leaders: Work on zoning and land use policies to attract investment and workforce housing.

The intersection of building industry trends and commercial real estate presents both challenges and opportunities for 2025. Commercial property stakeholders must adapt their strategies to stay ahead with the potential for lower interest rates, shifting workforce dynamics, and increasing demand for industrial space.

At VCRE, we specialize in helping investors, business owners, and developers navigate the evolving market. Whether you’re looking to acquire, lease, or develop commercial property, our team is here to guide you through every step.

Contact VCRE today to discuss your commercial real estate goals for 2025!