Each year, we reach out around this time to weigh in on how changes in our economy and the local commercial real estate market could play into, or work against, your current investment strategy. While it doesn’t seem possible, here we are again, another year gone by, wondering why time seems to move faster every year.
How Recent Economic and Political Changes Affect Commercial Real Estate
Last December, the country was still hyper-focused on what may go down as one of the biggest political upsets in American history. The re-election of Donald Trump as President of the United States. His first year back in office has been interesting and controversial. But this time around, President Trump was able to push through a massive tax package by Independence Day.
Now known as the One Big Beautiful Bill Act of 2025 (OBBBA), the new law extends and expands tax incentives memorialized in the Tax Cuts & Jobs Act of 2017, which were set to sunset next week.
Understanding 100% Bonus Depreciation for Commercial Property
Of particular interest to us is the 100% bonus depreciation provision. When combined with a cost segregation strategy, this represents the biggest commercial real estate tax strategy shift since the Reagan era.
If you recently purchased an industrial commercial property, or are contemplating doing so, you must fully consider this strategy. It can literally save you hundreds of thousands of dollars in the year of acquisition, even for a building as small as 5,000 square feet. No, that’s not a typo.
The Role of Cost Segregation in Commercial Real Estate Tax Planning
A properly executed cost segregation study allows property owners to accelerate depreciation deductions, significantly reducing taxable income. When paired with 100% bonus depreciation, this strategy becomes a powerful tool for commercial real estate investors seeking to maximize cash flow.
Commercial Real Estate Market Conditions Heading into 2025
From a macro perspective, current commercial real estate market conditions continue to send mixed signals in terms of job growth and inflation as the year closes out. That said:
- GDP growth remains strong
- Equity markets are at all-time highs
- Commercial property mortgage interest rates are back in the high 5% range
Sale and lease activity is still well off its pre-2023 pace, but we expect activity to pick up as more business owners recognize the impact of the OBBBA on commercial property investment strategy in 2025.
The outcome is not guaranteed, but we believe this shift is likely to:
- Slowly rising vacancy rates
- Put upward pressure on lease rates
- Increase commercial property sale prices
The last thing we expect is for the market to lose additional steam, making it essential for investors to stay informed and prepared for action.
Why an Annual Commercial Real Estate Checkup Matters
This process isn’t unlike staying on top of your physical health, where the value of a pre-emptive strategy is clear. Regular checkups help catch issues early and allow for adjustments that prevent larger problems down the road.
We view commercial real estate strategy the same way.
How ZehnerHill Supports Commercial Real Estate Investors
While many believe a real estate broker’s role is limited to locating assets and negotiating transactions, we see our role very differently.
We believe our knowledge, skill, and experience in industrial and commercial real estate services. They are best utilized by helping clients maintain a real-time understanding of market conditions.
Like a trusted physician, we bring specialized tools, market data, and experience to help you make informed decisions aligned with your long-term goals.
Schedule Your Commercial Real Estate Checkup
With all this in mind, we recommend a commercial real estate checkup to ensure your current investment strategy aligns with today’s market and anticipated changes ahead.
Just give us a call; our commercial real estate advisory team is here to help.
Happy Holidays to you and yours.