United States economic outlook

Activity

The latest US data has been mixed. Firms are investing, but consumption momentum has been weaker. Core capital goods orders – which should be the best judge of whether firms are pausing investment – rose 1.7% month on month (MoM), leaving orders 3.9%¹ higher than a year ago. Initial claims data also fell back for a second time (-14,000 from 7 June²), tempering the rise since mid-May. But unlike last week’s rise in the ‘control group’ for retail sales, Personal Consumption Expenditure (PCE) data showed a 0.1% contraction. This follows the downward revision to consumption in the first quarter and suggests weaker underlying momentum.

Inflation

Headline PCE inflation was 1.6%³ MoM annualised in May, the third weak month. Core PCE was a bit stronger than expected (2.2% versus our expectation of 1.8%⁴), while core goods rose 2.9%⁵. A small number of categories, such as major appliances, could be picking up a tariff effect, but there is little evidence of a broad-based shock so far. That said, the buffer provided by imports and inventories will not last and surveys suggest pricing pressure is rising. Chair Powell has noted that the Federal Reserve (Fed) expects tariffs to show up over the summer, although erratic tariff implementation could delay the impact.

Policy

Chair Powell’s two days of congressional testimony largely re-iterated that the Fed was “well positioned to wait”. The Wall Street Journal reported that Trump could announce the next Chair by September, suggesting medium-term rate expectations may be increasingly driven by comments from the Shadow Chair. Meanwhile, the Fed board voted to lower the enhanced supplementary leverage ratio, which proponents argue will boost treasury market liquidity. More rollbacks in bank regulations from the Global Financial Crisis-era should follow. Finally, Treasury Secretary Bessent has asked Congress to remove Section 899, having secured exemptions from the Organisation for Economic Co-operation and Development’s global minimum tax regime.

Source: Aberdeen, June 2025 Forecasts are a guide only and actual outcomes could be significantly different.

North American real estate market overview

As we approach the end of the grace period for reciprocal tariffs, we expect the final average tariff rate to end up around 13%⁶. This is around 10% higher than what we saw in the previous administration.

Headline retail sales fell 0.9%⁷ in May and personal household incomes slid 0.4%⁸ MoM. Combined with the space put on the market year to date, due to store closures and bankruptcies, we expect a challenging year for US retail.

US offices will remain a bifurcated story. While the East Coast shows positive signs of recovery, the West Coast is struggling with office attendance and a large amount of grey space.

In general, we are positive about data centres. Tight supply/demand dynamics will be the main theme of the sector. Tier-1 markets are just starting to exhibit strong rental growth⁹ and we believe we are very early into this cycle.

North American real estate market trends

Offices

We are still negative on the outlook for west-coast offices, as absorption continues to be weak. While residential absorption in San Francisco has improved significantly, it has not translated into a return-to-office increase, as weekly occupancy still sits around 40%¹⁰. Los Angeles faces the highest unemployment rate in the country, and landlords have had to give out five– to six-year concession packages for 10-year leases¹¹.

Select east-coast gateway markets are clear winners in the office space. Vacancy rates have dropped 40 basis points. As leasing recovers and given limited speculative supply, New York offices should outperform other office markets for the rest of 2025.

Overall, office performance will be largely bifurcated, not only in terms of the market but also by asset quality. The lack of relevant, competitive supply will support stronger growth in top-tier buildings.

Industrial and logistics

Tenants had negotiating leverage during the second quarter of 2025. With average tariff rates of 13%, there is a risk to demand for logistics and industrials as consumer spending slows and as import traffic follows.

We expect some distancing from Chinese imports, which will put pressure on west-coast industrials. This would resume the long-term trend of import traffic increasingly moving to the East Coast¹². Meanwhile, industrial markets with more established intermodal infrastructure, such as Chicago, Dallas and Atlanta, should see some pickup from onshoring and reshoring. But this is unlikely to meaningfully improve rental growth.

Overall, elevated vacancy levels will likely restrict landlords' ability to raise rents on large buildings. This means that rental growth in 2025 could be a consecutive year of moderation.

Retail

US retail sales were weaker in May. Headline sales fell 0.9%¹³ in May, significantly greater than the consensus estimate of 0.6%¹⁴.

We expect rental growth to moderate in the retail sector. Retailers such as Big Lots, Joann, Party City, and Walgreens have vacated stores. This means that over 15 million square feet¹⁵ of space has been put back on the market since the start of the year.

Leases that are on the market from the likes of Rite Aid and Joann have not been received as enthusiastically as initially expected.

Meanwhile, the availability of malls should keep rising for the foreseeable future, and asset quality will be a great differentiator in mall performance.

Multifamily

The large imbalances in demand for east-coast hubs are expected to remain strong. With high barriers to home ownership and limited supply for renters, vacancy rates for the east-coast markets should stay relatively tight.

While vacancy rates have decreased slightly in Los Angeles, headwinds are mounting from job losses and a tighter immigration policy. This weighs against the expected tailwinds from the city’s fires and the subsequent demand. Considering this, we have downgraded our outlook for Los Angeles.

From the second quarter of 2025, San Francisco’s annual net absorption was 3,800 units¹⁶. This was one of the highest levels of the past decade, and vacancies have improved since the start of the year.

Nationally, the increased average construction lead time for multifamily assets could mean that rental growth will accelerate as we head into 2026.

Single-family rentals

Single-family rentals (SFR) are performing well. The difference in cost of renting versus owning is around 30%¹⁷ in most markets. While there is some downward pressure on home values as affordability ceilings are reached, this is unlikely to have a significant impact on SFR rents.

SFR demand should outstrip supply, with development still below historic levels on a per-capita basis. However, we would exercise cautious optimism in central Florida and Las Vegas, as vacancy rates trend upwards and rental growth slows.

Overall, we think that demand in the sector will remain fairly strong, given the high price of home ownership and more expensive mortgages. Construction costs are expected to increase but new supply will remain limited.

Alternatives

We believe that the tier-1 data centre markets in the US will exhibit convincing rental growth numbers, as leases are worked through 2025 and 2026. The demand for artificial intelligence (AI) within the US may also receive a boost, as US-headquartered organisations may be pushed to retain 50%¹⁸ of their total AI needs in the US.

Healthcare drivers, such as an ageing population and the lack of supply for senior housing, are positive drivers for the sector. However, bifurcation exists in medical office buildings, and lower-quality stock is being challenged by retail spaces and office conversions. Additionally, Medicaid cuts through the “big, beautiful bill” are negatively affecting healthcare fundamentals.

Demand for home ownership is expected to be more tempered than initially expected. This is a result of interest rates remaining volatile, home ownership affordability remaining low, and only one rate cut this year. Hence, we expect self-storage returns to be below average for the next three years.

Outlook for risk and performance

US office fundamentals remain challenging, given low job growth in the office sector and a weakening economic growth outlook. Despite return-to-office mandates, west-coast offices are struggling with an elevated amount of available grey space. Performance will be highly market- and asset-specific.

Residential demand for both multifamily and single-family rentals should perform well. The cost of rent versus ownership is driving demand, but a weaker outlook for employment growth presents some downside risk.

A weakening consumer backdrop and retailers announcing plans to close twice the number of stores they did in 2024 have dimmed the retail outlook. Rental growth for retail is likely to moderate as retail sales stabilise and as the pool of tenants seeking space becomes shallower.

We expect increasing performance bifurcation between the East Coast, Gulf Coast and ports in the West Coast. We see downside risks for the west-coast markets, as tariffs on China and Vietnam weigh on imports into the ports of Los Angeles and Long Beach. Over the long term, this would bring more imports to the East Coast and the Gulf Coast, which is positive for industrial and logistics demand in these markets.

In alternatives, data centres are performing well, given the supply bottlenecks and robust demand exhibited by hyperscalers and colo-cloud players alike. Self-storage would likely face a slow recovery, as we expect the main demand drivers to be muted. We see some downside risks with healthcare, especially in medical offices and hospitals, as Medicaid cuts look to be on the horizon.