Navigating Commercial Real Estate in 2025: Strategic Moves for Success
With the recent passage of the Big, Beautiful Bill, 2025 is poised to be a transformative year for commercial real estate (CRE) decision-makers. The changing landscape includes fluctuating interest rates, new tax incentives, and evolving construction dynamics. Whether you own, lease, or advise others in the sector, the following seven strategic moves can help you prepare for this pivotal year, ensuring that you make the most of the opportunities available.
1. Conduct a Cost Segregation Study
One of the most significant changes resulting from the new legislation is the reinstatement of 100% bonus depreciation on qualifying property and equipment. However, to take full advantage of this benefit, understanding which assets qualify is essential. Therefore, it’s prudent to engage a qualified cost segregation firm if your operations involve industrial real estate or property improvements. This step could potentially unlock substantial immediate tax savings, amounting to hundreds of thousands of dollars, thereby enabling strategic financial planning moving into 2025.
2. Reevaluate Lease vs. Own
As we enter 2025, interest rates remain elevated, but lease rates are also competitive. With the reinstatement of bonus depreciation, the dynamics of owning versus leasing may significantly shift. It’s essential to conduct fresh comparisons rather than relying on previous analyses. Consider factors such as Small Business Administration (SBA) financing options and creative ownership structures that may now make purchasing real estate a more viable option. The financial equation may have changed, making ownership more appealing for some tenants.
3. Consult with Your CPA
Navigating the updated tax landscape requires proactive planning, particularly due to the significant changes introduced by the OBBB. Many property owners and tenants mistakenly assume that their tax preparers will automatically identify beneficial strategies. To avoid missing out on potential tax advantages, schedule a strategic consultation with your CPA before year-end. Focus discussions on crucial topics like bonus depreciation eligibility, Section 179 limits, capital improvement planning, and available credits for energy-efficient upgrades.
4. Consider Energy Improvements Now
Federal tax credits for energy improvements, including solar installations, enhanced lighting, and electric vehicle charging stations, present a timely opportunity for property owners. These incentives could phase out or become more stringent as we approach 2026. Therefore, if you have been deliberating over energy efficiency upgrades, now is the time to act. Explore financing options that align with federal credits to maximize your investment in sustainability.
5. Review Long-Term Property Control
In today’s volatile market, maintaining control over your property is crucial, whether you are an investor or an occupant. Take a close look at your lease or operating agreement to ensure you have favorable terms like renewal rights, extension options, and protections against unwanted sales or transfers. If you lack these clauses, effort can be made to negotiate them effectively into your agreements, providing you with greater security in the changing market landscape.
6. Prepare for Estate or Ownership Changes
The commercial real estate landscape is seeing a substantial generational shift, with billions of dollars poised to change hands over the next decade. With 2025 presenting a unique opportunity for planning, it’s essential to address issues of ownership and inheritance early on. If you are an aging property owner, review your trust structure and succession plans. Conversely, if you are a potential heir or partner, don’t hesitate to ask questions. Being proactive now can help you avoid unexpected complexities in the future.
Conclusion: Position Yourself for Success
As 2025 approaches, the most successful players in the commercial real estate market will be those who prepare early and act decisively. It’s not always about being the largest market player; sometimes, it’s about being the most informed and proactive. By conducting cost segregation studies, reassessing ownership versus leasing dynamics, consulting with CPAs, considering energy improvements, and ensuring long-term control over properties, you’ll be well-positioned to take advantage of the opportunities that lie ahead.
The right team can also make a difference; consider building your network of professionals, including commercial brokers, real estate attorneys, tax strategists, and cost segregation firms, to ensure that your deals close smoothly. Ultimately, the best chances for success in 2025 will go to those who pay attention, ask the right questions, and strategically navigate the evolving landscape of commercial real estate.
With preparation and informed decision-making, you can position yourself for success in what promises to be a transformative year.
For further guidance or inquiries, reach out to Allen C. Buchanan, a principal at Lee & Associates Commercial Real Estate Services in Orange, at abuchanan@lee-associates.com or 714.564.7104.