2025 Commercial Real Estate Investing in the Southeast

After an ongoing period of economic uncertainty and shifting work dynamics, commercial real estate (CRE) owners and investors are again feeling optimistic about the office and retail sectors in the Southeast. There’s good reason. In Q2 2024, the region led the nation in gross domestic product.1

Regional population and new business growth are favorable for CRE.

With its warm climate and friendly reputation, the Southeast is increasingly attractive to consumers and businesses. In fact, the South has the fastest growing population in the nation according to the U.S. Census Bureau. The agency lists Florida (#3) and Georgia (#8) among the 10 most populous states in the region.2

Of course, growing populations spur opportunities for increased commerce. More than 2.1 million new businesses launched in the region in 2024.3 Georgia (#4) and Florida (#5) are among CNBC’s Top 10 business states.4

Recent economic improvements will also positively impact the region’s 2025 commercial real estate outlook.

Falling interest rates set the stage for growth.

Declining interest rates make commercial real estate loans attractive to investors looking for growth opportunities. “As short-term interest rates continue to decline, real estate owners and investors will benefit from less interest, which will offer some relief,” says Tyler Hudson, executive director of Synovus’s commercial real estate practice. “And while there’s still significant liquidity, it’s re-entering the market as increased investment. There’s strong demand for investment in good CRE assets and that will likely continue and improve in 2025.”

Prime locations are desirable in the office sector.

The Sun Belt doesn’t only offer nice weather, but also a strong business climate. Lower operating costs, a skilled workforce and pro-business regulations make the region extremely attractive for startups and established corporations alike.

The Southeast is a competitive market. The office sector’s outlook varies by specific market, location and property class. “Quality is driving the office market with optimally located Class A and B space performing well, while Class C faces more challenges,” Hudson says.

Office space occupancy nationally is around 80.6%5, but percentages are well above this average in mid-size Southeastern cities.

Larger metropolitan cities are also achieving above-average occupancy rates.

In Q3 2024, national office rent growth year-over-year was just 2.6%.6 However, Class A rents in the South were averaging $37.06 sf.7 While rents in metro areas like Tampa, Atlanta and Charleston came in just below the region’s average at $34.40, $33.38 and $34.78, respectively, others soared. Office rent in Palm Beach ($52.43) and Ft. Lauderdale ($45.81) was higher than the national average ― with Miami ($63.39) even exceeding average rent in the Northeast.8

How is commercial real estate addressing return-to-office mandates?

Remote work was a game changer for corporations and employees during the initial phases of the COVID-19 outbreak. With the pandemic now under control, employers are having to rethink how they use office space.

In late 2021, some organizations began issuing return-to-office (RTO) mandates requiring employees to work onsite the entire week. Others, including Southeast-based UPS and Home Depot, adopted a hybrid work model giving employees the flexibility to work onsite a certain number of days per week.

“The verdict is still out on return-to-office mandates, how hoteling works and whether employees will quit instead of coming into work every day,” says Hudson. “When establishing guidelines, the power has shifted from employees to employers. That said, we’re seeing companies relocate to office space with better amenities, especially those organizations interested in attracting quality workers back into the office.”

South Florida leads the nation in return to work, with employees coming back to the office at a rate 20 points higher than the national average.9 Miami ranked second highest in office building attendance recovery with 82.6%, behind New York City with 86.2% recovery. Atlanta’s recovery rate is also strong at 71.9%.10

Office space conversion to residential is another growing trend but not without obstacles. “This is an appealing idea for older, less adaptive office space, but it continues to be challenging,” Hudson says. “Fewer buildings are appropriate for conversion, based on floor plans, ceiling heights or window lines. So, they’re not easy or inexpensive.”

Mixed-use developments are commonplace and offer another commercial real estate investment option. “There’s been a lot of success in using office space for mixed-use developments,” says Hudson. “Three- or four-story buildings with stairwells, located in a walkable area for restaurants and retail — continue to be attractive options.”

Co-working arrangements, in which multiple organizations share office space, is also growing in popularity. Between the second and third quarters of 2024, coworking spaces grew 7%, with a 4% increase in square footage.11

Office spaces that are walkable or with shorter commute times are more appealing to workers. Corporations that support work arrangements like these are seeing better RTO performance.12 Easily accessible urban areas are still a draw for commercial real estate investment.

High-income earners are driving up retail occupancy rates.

As they continue to spend, higher income earners drive retail demand, which benefits the Southeast’s commercial real estate market.

“There hasn’t been a lot of new retail space growth because ground-up development is so expensive,” Hudson explains. “Grocery-anchored developments continue to perform very well. Retail occupancy and rent are performing very well in our footprint, and I don’t see this changing over the next few years.”

The average national retail occupancy rate was 95.3% in Q3 2024. Southeastern retail inventory is also scarce, with some markets reflecting rates higher than the national average.

Average national retail rental growth is at 2.24%, but some Southeastern cities saw much higher rate increases. Among the cities are Atlanta (5%), Tampa (4.6%), Orlando (4.6%), Miami (3.3%) and Nashville (3.2%).13

Commercial real estate investments in the Southeast will be wise choices.

“Population growth, favorable business conditions and lower interest rates are all good news for the region,” Hudson says. “The data demonstrates that the Southeast presents an exceptional commercial real estate investment opportunity.”

Synovus can help organizations develop commercial real estate investment strategies and secure capital for large projects in the Southeast. For more information, contact a Synovus Commercial Banker or stop by one of our local branches.