As of February 2025, the U.S. construction, property, and real estate sectors are navigating a dynamic landscape shaped by economic fluctuations, policy shifts, and evolving market demands.

This comprehensive update delves into the current state of these industries, and here’s what you need to know.

Economic Overview

The U.S. economy in early 2025 shows a mix of resilience and caution. The construction and real estate markets face challenges stemming from policy changes and market dynamics with strategic decision-making heavily influenced by the interplay of these factors.

One of the most immediate concerns is the proposed 25% tariff on lumber imports, which would raise material costs across commercial and mixed-use development projects. Higher construction costs could damage project feasibility for developers, particularly in sectors reliant on value engineering to maintain margins, such as retail redevelopments and industrial construction.

In parallel, reductions in staffing levels at key government agencies, including the Department of Housing and Urban Development (HUD), are expected to slow the approval process for federally supported projects. Developers involved in public-private partnerships (PPPs), particularly those focused on urban regeneration or infrastructure-adjacent developments, will need to navigate longer timelines and greater administrative complexity.

These factors, the implemented tariff and agency staffing reductions, have a direct impact on the health of the US economy, specifically the property, construction, and real estate sectors.

Interest Rate Dynamics

The Federal Reserve's monetary policy continues to shape the landscape for real estate development, investment, and construction financing. As of January 2025, the federal funds rate sits between 4.25% and 4.5%, below the higher rates seen through 2023 and 2024.

While borrowing costs have eased slightly, they remain historically elevated, keeping pressure on project financing, refinancing strategies, and capital deployment across the commercial property sector. Developers considering large-scale mixed-use projects, office refurbishments, and industrial expansions are facing tighter lending conditions than in the pre-pandemic era, with lenders placing greater emphasis on risk mitigation and extensive feasibility studies.

For institutional investors and developers with strong balance sheets, the current rate environment presents selective opportunities to acquire underperforming assets, particularly older office buildings that may be ripe for redevelopment into mixed-use or life sciences space.

At the same time, rising capital costs are driving demand for innovative financing structures, including joint ventures, green finance initiatives, and value-add strategies that can justify higher upfront borrowing costs with long-term operational efficiencies.

These factors have contributed to a set of conditions that are difficult for housing demand, although said conditions are predicted to thaw as the year plays out.

Commercial Real Estate Trends

The commercial real estate (CRE) sector is experiencing notable transformations in 2025, from altering office space demand, to industrial real estate growth.

The office up-cycle is gaining momentum, having started in 2024, with shortages of prime space at the end of the year contributing to an expected resurgence of America’s downtown offices. Office sector vacancies dropped to 20% following record levels across 3 quarters. The rise of remote and hybrid work is a structural change, not a temporary trend, forcing landlords to rethink traditional office space and explore alternative uses amongst other amenities. Unsurprisingly, 76% of CRE owners and investors confirmed plans to undertake deep energy retrofits in the next 12-18 months.

The growth of e-commerce has fundamentally altered the demand for industrial space, with vacancy rates remaining at a consistent rate of 6.8%, which is still below the averages shown before the pandemic. Industrial properties needed to support e-commerce operations will also experience strong demand, which includes distribution centers, warehouses, call centers, data centers, and server farms.

The commercial real estate sector has a largely positive outlook, with strong performance shown in industrial real estate, on top of consistent retail growth.

Policy and Taxation Considerations

Tax policy remains a focal point for stakeholders in the real estate and construction sectors, with tax policy uncertainties representing interesting developments.

The expiration of key parts of the Tax Cuts and Jobs Act (TCJA) represents a challenge in that it sets the stage for legislative battles. The TCJA’s provisions, especially around bonus depreciation and interest deductions, have significantly affected real estate and construction, with firms needing to adjust cash flow planning and rethink investment timing, as well as the approach to structuring project financing.

Bonus depreciation, which lets businesses deduct a large percentage of an asset’s cost in the first year, has been a major driver for construction investment, so any changes would have a large impact on the amount of new developments initiated.

Limitations on interest deductions can impact the financing of large real estate projects, as they are likely highly leveraged and rely on favourable financing terms to be viable. Further restrictions on interest deductions could lower project margins and render certain projects financially unfeasible.

These factors highlight the significance of policy uncertainty and the need for businesses to plan for various scenarios.

Recruitment and Employment Outlook: Skills and Strategy

The construction and real estate sectors are experiencing shifts in employment trends, with reductions in agency workforces and growing demand for specialized skills.

There is scepticism regarding the proposed workforce cuts at the Department of Housing and Urban Development (HUD), Federal Administration, and the Government National Mortgage Association. This could negatively affect job opportunities within these agencies and the related industries, not to mention slow the approval process for certain publicly supported projects.

There is also a growing demand for skilled labour as developers and asset managers aim to future-proof their portfolios, which includes expertise in sustainability, data analytics, and project management. There is a greater emphasis being placed on hiring talent capable of navigating complex regulatory environments, and this demand is expected to persist, which will drive up wages and create intense competition for qualified workers. Companies will prioritize selective hiring to strike a balance between growth ambitions and market risks, which will lead to further targeted recruitment strategies. The adoption of technologies like Building Information Modelling (BIM), AI, and robotics will accelerate, creating further demand for digital skills, and prompting companies to invest in training to upskill their workforce.

This reflects the changing nature of work in these sectors, with an increased emphasis on technology and sustainability.

Capstone Mentored: Investing In The Future

At Capstone, we’ve always known that finding the right match is about more than ticking boxes on a job description. It’s about building careers and nurturing talent. Over the past year, our MD, Sarah Davenport, and the team have seen first-hand how valuable it can be to connect up-and-coming talent with experienced industry professionals who’ve been there, done it, and want to give back.

In response to the evolving needs of the construction, property, and real estate sectors, we are proud to introduce our mentorship program – Capstone Mentored. This initiative is designed to connect rising talents with industry leaders within our network to foster knowledge sharing, skill development, and career advancement.

In joining our program, you can expect:

• Personalized mentorship from experienced professionals.
• Guidance on navigating market complexities and career challenges.
• Opportunities to expand professional networks.
• Skill development in key areas like sustainability, data analytics, and project management.

This isn’t about box-ticking, it’s about giving younger professionals the chance to learn from those who’ve already navigated the challenges of the construction and property industries. It’s about sharing stories, insights, and advice that can help someone confidently take that next step in their career.

Whether you’re a seasoned professional looking to give back to the industry or a talented individual seeking guidance, our mentorship program can offer you valuable opportunities for growth and development. For more information, browse through our Capstone Mentored page or contact Sarah Davenport:

✉️ s.davenport@capstone-recruitment.com

📞 020 3757 5000

Navigating Uncertainty

2025 brings a blend of challenges and opportunities to the U.S. construction, property, and real estate sectors. Interest rate fluctuations are driving this period of uncertainty, alongside regional variations, economic policy, sector-specific trends, and evolving market demands, so now more than ever, companies need to focus on adaptability and data-driven decision-making to sustain success in the current market.

At Capstone Recruitment, we’re committed to helping businesses and professionals navigate this evolving landscape. Whether you're seeking top-tier talent to lead new developments, or simply want to stay ahead of the market, Capstone’s specialist recruitment services in Property, Construction, and Real Estate are tailored to help you succeed.

Contact us today to discuss how we can support your goals in 2025.