New England Commercial Real Estate at Year-End 2025: What the Data Says
December 28, 2025 | Author: David J. Murphy
Late-2025 data reveal New England commercial real estate in the midst of a selective recovery. Higher borrowing costs continue to constrain development and transaction volume, yet leasing activity and fundamentals in key sectors are stabilizing rather than deteriorating, according to recent analyses from the Federal Reserve Bank of Boston, J.P. Morgan, and Deloitte.
A Region Growing, but Slowly
The Federal Reserve Bank of Boston’s economic conditions report, published in mid-November 2025, describes a regional economy that is expanding but at a pace below the national average. Private-sector employment in New England grew 0.6 percent year-over-year in October 2025, slightly behind the 0.7 percent national rate. More notably, continued unemployment insurance claims, a measure of how long workers remain on unemployment benefits, rose 27 percent year-over-year in New England, compared with just 4 percent nationally. The Boston Fed attributed some of this divergence to layoffs in education and health care stemming from cuts to federal grant funding.
Housing markets showed continued price strength. As of August 2025, New England house prices had risen 4.7 percent year-over-year, more than double the 2.3 percent national rate, despite elevated interest rates.
Commercial real estate conditions are more uneven. Office properties remain a relative weak spot for the region, while industrial, retail, and multifamily have demonstrated greater resilience.
Signs of Modest Improvement
The Federal Reserve’s Beige Book for the First District, released November 26, 2025, offers the most detailed late-year assessment of New England commercial real estate conditions. The report describes commercial real estate activity as having “picked up slightly amid a slow recovery in the office market,” language that suggests incremental progress from depressed levels rather than a robust rebound.
Industrial leasing held steady at what businesses surveyed by the Fed described as a healthy pace, and retail markets exhibited low vacancies alongside solid rent growth even as consumer spending leveled off. Apartment markets showed strong occupancy, though rent growth moderated as the post-pandemic surge in multifamily demand cooled.
Development activity, however, remains constrained. Businesses emphasized that high construction costs and the lingering effects of elevated interest rates continue to deter certain projects.
National Context: Cautious Optimism
Nationally, research published in early December 2025 by J.P. Morgan characterizes 2025 commercial real estate conditions as “largely optimistic,” with industrial properties remaining what analysts term the “industry’s darling” and multifamily and retail continuing to perform well despite higher financing costs.
Office remains the weakest major property type, with vacancy rates at or near record highs, though J.P. Morgan notes early signs of stabilization in certain high-quality, amenity-rich assets. Across sectors, income fundamentals, including rents and occupancies, have generally held up. Victor Calanog, Global Head of Research and Strategy for Real Estate Private Markets at Manulife Investment Management, is quoted in the report stating that “the landing will be relatively soft, so that should mean continued positive momentum for economic activity, benefiting leasing and income drivers, including rents and occupancies.”
Yet elevated interest rates and tighter credit conditions are limiting leverage, slowing transaction volume, and widening the gap between buyer and seller expectations.
Capital Strategy in a Higher-Rate Environment
Deloitte’s 2026 Commercial Real Estate Outlook, released in the fourth quarter of 2025 and based on a global survey of more than 850 commercial real estate executives, finds respondents “cautiously optimistic,” anticipating gradual improvements in revenues, rent growth, and occupancy over the next 12 to 18 months. At the same time, those surveyed identified interest rates and capital availability as the primary risks to performance.
The research highlights a shift in investor priorities. Capital is flowing toward sectors with structural demand tailwinds, including logistics, specialized industrial, and housing, where long-term fundamentals justify deployment despite higher financing costs. Investors are also placing a premium on balance-sheet strength and flexible capital structures, positioning themselves to navigate refinancing challenges and capitalize on opportunities as weaker owners sell or recapitalize assets.
What the Research Suggests
Whether these national and global patterns hold for New England remains an open question. The region’s relative strength in multifamily and industrial, combined with persistently tight housing supply, suggests alignment with broader investor preferences. Office, by contrast, continues to face headwinds locally where Boston office vacancy rates rose year-over-year in the third quarter of 2025, even as national vacancy rates showed modest declines.
What remains uncertain is how quickly, or whether, interest rates will decline sufficiently to unlock the transaction volume and development activity that many market participants have deferred. For now, the data points toward selective opportunity rather than broad recovery, with outcomes varying significantly by property type, submarket, and capital structure.
Sources:
- Federal Reserve Bank of Boston, New England Economic Conditions through November 18, 2025
- Federal Reserve, Beige Book, First District, November 2025
- J.P. Morgan, 2025 Commercial Real Estate Trends (December 3, 2025)
- Deloitte, 2026 Commercial Real Estate Outlook
David J. Murphy is the managing attorney at Murphy PC in Boston, Massachusetts. He regularly represents real estate developers and investors in real estate development projects.