2025 Geopolitical Environment and CRE Impacts

2024 delivered as one of the most dynamic years in recent memory and 2025 promises to be no different. Geopolitics will impact opportunities – and risks – around commercial real estate, location strategy, economic development and workplace strategy. While the headlines offer one perspective, our team at Newmark is focused on the trends and impacts that will affect our space throughout the year.

U.S. Policy Shifts Course

A change of administration will always bring new perspectives. As one example, industrial policy is anticipated to take a different shape as deregulation is more preferred than direct federal spending, impacting industries such as semiconductors and battery technology.

Federal legislation will be difficult to pass, given the ruling party’s slim majority. New corporate tax cuts are a high priority, as are the topics of migration and deregulation, and there are expectations that potential legislation will come to a vote in Q2 or Q3. Once these priorities are covered, however, there may be less low-hanging fruit to seize, reducing the odds of further legislation.

As such, executive orders are rising in prominence as a policymaking tool. The rapid development and implementation of executive orders can shift business environments quickly, so keeping alert on pertinent issues and conducting scenario planning is a priority.

CRE Impacts:

• Deregulation could provide the chance for new development and redevelopment to proceed more quickly
• Tariffs may impact supply chains, offering opportunity for relocation and/or risks around securing cost-effective materials for new builds and renovations
• In the absence of federal monies supporting specific industries, state and local incentives will become more critical in attracting investment

Pivot Year for Europe

Caught between changing U.S. priorities, an aggressive Russia and competitive China, Europe faces a new world. Elections are one key indicator for next steps, as Germany, the United Kingdom, Poland and others are holding votes. 2024 saw a rejection of incumbent leadership in advanced economies; will this sustain through 2025? The impact of elections on industrial policy will be critical as manufacturing makes up about 15% of GDP (vs. a 10% share in the US) per the World Bank, especially given challenges to the automotive sector and other energy-intensive industries.

While Europe faces challenges, the full story is not yet written. Few regions share such high levels of education, impressive infrastructure and the long legacy of a cutting-edge private sector. Emerging trade deals with Mexico and South America’s leading economies may offer new opportunities. And the region’s relatively higher industrial base could turn out to be a boon for advanced manufacturing and the “fourth Industrial Revolution” for future growth. In an environment where innovation and capital will be key requirements for success, Europe may be primed for a rebound.

CRE Impacts:

• Emerging EU competitiveness strategy may signal new industrial opportunities, especially in advanced manufacturing, EV/batteries, etc
• Expansion of trade partners in the face of possible U.S. tariffs could offer logistics opportunities
• Policy shifts may slow or complicate economic policy responses, depending on country-by-country results; firms could seek more diverse supply chains

Power Generation Inflection Point

Rising manufacturing capacity and the electrification of vehicles and homes are converging with continued data center development (reference to our work on data centers). Communities, companies and investors face urgent choices due to power limitations and the need to expand and upgrade capacity.

Where will this generation come from? Green energy sources are more cost competitive than ever and, in the case of solar, sometimes faster to scale up than fossil fuels. Nuclear is enjoying a rehabilitation in the public eye, although both large-scale plants and small modular reactors (SMRs) will take several years (at least) to come online. The US’ dominant position in gas and oil production will drive ongoing fossil fuel generation, as well. Options such as “behind the meter” solutions, where energy generation or storage is onsite and off the main grid, could reduce energy price volatility and system risks.

The costs and regulatory burdens of developing power generation are many, but possible changes mean that this front is worth eyeing closely. Policy deregulation may speed up delivery of power generation, including fossil fuels and nuclear. This trend is also likely to come from the state level, where policy changes can emerge more quickly than at the federal level.

CRE Impacts:

• Costs of power infrastructure buildout/upgrades will vary depending on the state and provider, affecting consumers differently; data center-specific policies should be closely monitored
• Less federal support for green energy, but cost competitiveness of green sources makes it evolve into an important piece of supply diversification; ERCOT’s solar generation in Texas is expected to triple by 2030, per their own estimates
• Energy efficiency improvements will be critical given power constraints and as a hedge against possible power price spikes, placing an emphasis on retrofits and, when necessary, rebuilds

Tech Acceleration

One story that is already defining 2025 is the rapid pace of technology development, led by AI. The announcement of DeepSeek’s AI offering from China has been labeled as a “Sputnik moment” that highlights how close tech competition is around the world. Not just AI, but other emerging industries – drones, space travel, quantum computing, etc. – are quickly evolving.

When – not if – tech breakthroughs are announced, will there be a policy response? New federal spending a la the IRA or CHIPS Act is not anticipated as a policy tool, but targeted support for tax breaks, special economic zones or deregulation could be used instead to boost specific industries.

Meanwhile, there are real world requirements to keep the virtual world growing. Data centers remain necessary to AI growth, setting up more rigorous site selection and power generation conversations. Drone manufacturing will be a cornerstone of defense production, setting the stage for new hubs to make it happen. And as new centers for the space sector and quantum computing emerge, supply chains must grow and adapt with them.

CRE Impacts:

• The search for suitable data center locations continues to expand, offering opportunities for new development but risks for land competition and scarcity
• Communities with advanced manufacturing (or adjacent) experience have a unique chance to plug into supply chains for advanced defense materiel
• R&D hubs may have new opportunities for success as demand for tech innovation grows, but funding will need to be coordinated should federal funding slow down

Other Trends to Keep an Eye On

• Fluid conflicts with no clear ending
  • Several world conflicts have unclear timelines for a full resolution. This leads to ongoing risks for escalation, as well as supply chain threats and costs. Think of diverting airlines around Russia, for example. If new conflicts emerge, there could be more mitigation to come, piling on costs and delays.
• Gray zone security threats
  • Countries not directly affected by a kinetic conflict must now face the threat of a “gray war,” or aggressive actions that fall short of clear-cut acts of war. The severing of undersea internet cables or attempted bombing of freight planes are likely recent examples. Vulnerabilities to infrastructure and supply chains may require increased security, redundancy options and risk premiums that could have knock-on price effects.
• Workplace dynamics remain in flux, but tighter labor markets support employer-mandated terms
  • Labor markets are moving closer to historical norms at 1.12 job openings to each unemployed person, per the Bureau of Labor Statistics, playing a role in both corporate and government policies pushing for a “return to office” (RTO). The RTO vs. remote work debate is far from over, however, and tailored solutions remain ideal, as the top-performing staff still have options in their work environments