United States economic outlook

Activity

The US economy appears to be losing momentum. Activity data has been weak in early 2025, and business and consumer sentiment has deteriorated sharply in the face of tariff threats. Uncertainty over trade policy and disruptions from higher tariffs now look set to provide a deeper drag on consumption and investment this year. This is likely to lead to slower, as opposed to stalling, growth. Strong household and corporate balance sheets are providing some ballast against policy disruptions. However, the risk of a downturn has increased, especially if tariff rates rise even more than we expect. 

Inflation

US inflation is set to remain higher for longer in the face of protectionist trade policy. Indeed, we now expect larger and broader increases in tariffs to drive consumer prices higher this year, assuming no significant offsetting currency moves or corporate margin compression. As such, the slowdown in core Personal Consumption Expenditures inflation will stall over 2025, leaving the year-over-year rate running uncomfortably hot between 2.5% and 3% [1]. Risks are tilted towards even higher inflation should tariffs rise more than we expect. Risks may also be affected by other aggressive policy action from the new administration, including immigration and fiscal policy.

Policy

During the March Federal Open Market Committee (FOMC) meeting, the median FOMC member interest rate forecast – or the dot plot – was unchanged [2], pointing to two rate cuts this year. Scratching beneath the surface, the individual forecasts moved in a more hawkish direction, with eight participants expecting just one or no cuts this year and only two expecting three cuts. Indeed, we think the Federal Reserve (Fed) will wait until September to deliver its only cut this year, as it looks to balance competing risks around its inflation and employment mandates. However, should the central bank see signs of distress emerging in the labour market, it would cut rates sooner and by more.  

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

North American real estate market overview 

As tariffs start to weigh on US economic growth, the real estate sector will feel some of this pressure, especially for retail, offices and industrials.

The US consumer is already weakening, with serious credit card defaults at 2% above the long-term average of around 9% [3]. Shop closures are also expected to double this year [4], as cost pressures associated with tariffs and deportations play out. Overall, we expect a challenging year for US retail. 

US offices will remain a bifurcated story, despite return-to-office (RTO) mandates for technology companies. Anecdotal evidence suggests there’s more life on the west-coast streets, but grey space is struggling to be absorbed and remains elevated [5].

In general, we are most positive about the multifamily sector, as excess supply should be absorbed by mid-2025. Industrials will face headwinds as tariffs weigh on occupier and investor decisions this year, but reshoring of occupiers should limit the negative impact on returns.

North American real estate market trends

Offices 

Despite the efforts of technology companies on the West Coast to implement full-week RTO mandates, there is still a large amount of grey space in the San Francisco and Los Angeles markets. 

On the other hand, select east-coast gateway markets are clear winners in the office space. Given the occupancy recovery it has had so far, New York offices should outperform other office markets for the rest of 2025.

But there are challenges, even on the East Coast. We think Boston will face a year of challenges. Availability has reached an all-time high of 18.3% [6], as new supply comes online without being fully leased, amid a net reduction of space from existing tenants.

Overall, office performance will be largely bifurcated, not only in terms of the market but also by asset quality. Factors such as access to mass transit and an attractive after-work scene in the surrounding area all play a significant role in office performance.

Industrial and logistics 

Recent surveys on space utilisation in warehouses show declining excess capacity within distribution centres [7], but at levels still above historic norms.

With more tariffs on the horizon, and goods spending softening in January and February [8], the outlook is weighted to the downside. We expect rental growth to slow further and for elevated vacancy levels to limit the ability to raise rents. 

We expect more distancing from Chinese imports, which will put pressure on west-coast industrials. Meanwhile, more industrial markets with established intermodal infrastructure – such as Chicago, Dallas and Atlanta – should benefit from the effects of reshoring. But this bump in demand may not be meaningful enough to accelerate rental growth nationally.

Industrial vacancy rates could peak at a relatively low rate in 2025, which could support a re-acceleration in rental growth once availability begins to tighten again in early-2026. But we don’t expect rental growth to return to pre-Covid levels. 

Retail

The US consumer backdrop is now slowing. We are already seeing serious credit card defaults that are markedly above their long-term average. January marked the first month in over a year since consumer spending experienced a monthly pullback [9]. We also note that the number of store closures this year is expected to double from 2024.

We expect a significant variation in rental performance in the year ahead. Fast-growing cities in the southern and southwestern regions of the US, and smaller spaces along primary corridors, should outperform. Rental spreads on spaces leased for five or more years should remain at decade-highs during this year.

Meanwhile, the availability of malls should keep rising for the foreseeable future, and asset quality will be a great differentiator in mall performance. Overall, a weakening consumer backdrop and shallower tenant demand may limit retail rental growth in the near term.

Multifamily

By mid-2025, multifamily construction starts are expected to be 74% below their 2021 peak and 30% below their pre-pandemic average [10]. Demand for east-coast hubs is expected to remain strong. With high barriers to homeownership and limited supply numbers, vacancy rates for the east-coast markets should stay relatively tight.

Meanwhile, Los Angeles apartments should experience growth in net-operating income, given occupancy improvements following the fires. The muted supply background has also given an opportunity for the sunbelt markets to absorb excess vacancy.

Demand is likely to remain robust, given that renter affordability has improved. A higher interest-rate environment is hindering renters from making the jump towards homeownership. But given the recent tariff announcements and faltering consumer confidence, there is a downside risk on demand. Overall, this translates into a relatively modest outlook until mid-2025. But a delayed supply response is likely, given the current higher-for-longer environment. The increased average construction lead time for multifamily could mean that rental growth should see some acceleration as we head into 2026.

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 RTO mandates, west-coast offices are struggling with an elevated amount of available grey space. Performance will be highly market- and asset-specific. 

Multifamily demand remains robust, given renters’ affordability has improved over the past two years and the higher-for-longer environment has slowed the jump to homeownership. Excess supply is also on track to be absorbed in the sunbelt markets. Overall, we expect a delayed supply response to drive rental growth as we head into 2026. But downside risks are present. With a slowing economy and weaker consumer confidence, there could be a reduced tenant pool for multifamily, which would weigh on rental growth prospects.

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. But rental spreads on spaces leased for five or more years should remain at elevated levels during 2025.

Performance in the industrial and logistics markets should be relatively stronger around east-coast ports and markets with established intermodal terminals and access to major population centres. Chicago, Atlanta and Dallas should fare well from the ongoing nearshoring and reshoring efforts. However, 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.