Small CRE: The Hidden Gem of Commercial Real Estate Investing in 2025

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While the spotlight often shines on towering skyscrapers and bustling city centers, a quiet revolution is happening in the world of commercial real estate. Investors are discovering that smaller, less glamorous properties—like strip malls, small office buildings, and industrial spaces in secondary markets—are not just surviving but thriving in today’s market. In 2025, these small commercial real estate (CRE) assets are proving to be resilient, high-performing investments, offering stability and value in a cycle marked by economic recovery and shifting tenant preferences.

Why Small CRE is Resilient

Small CRE is showing remarkable strength, particularly in the retail and industrial sectors. Retail properties, especially neighborhood centers anchored by essential services like supermarkets and drugstores, boast vacancy rates as low as 4.1%—a record low. This stability is driven by consistent demand for everyday necessities, making these assets a safe harbor in uncertain times. Meanwhile, industrial spaces are riding the e-commerce wave, with logistics hubs near transportation networks seeing robust occupancy and rent growth. Industrial rents grew by 4.7% in the 12 months leading up to April 2024, and this momentum is expected to carry into 2025.

Compare that to large urban offices, where vacancy rates exceed 22% in some tech-heavy cities like San Francisco. The data paints a clear picture: small CRE is outperforming its flashier counterparts by staying adaptable and in demand.

Unlocking Higher Returns in Secondary Markets

One of the most compelling reasons to invest in small CRE is the potential for higher returns, especially in secondary markets. Undersupplied areas—like small towns in the Midwest or fast-growing Sun Belt cities—are seeing increased demand fueled by migration trends and lower costs of living. These markets allow investors to capitalize on growing opportunities while sidestepping the fierce competition and high costs of major urban centers.

What’s more, capitalization rates (cap rates) for CRE are expected to compress slightly in 2025, even as the 10-year Treasury yield hovers above 4%. This signals improved valuation prospects, enhancing the long-term value of small CRE. According to Hines Research, 66% of global markets are in a “buy” cycle—the highest level since 2016—making now an opportune time to explore these high-potential areas.

Flexibility for the Hybrid Work Era

The rise of hybrid work is reshaping office needs, and small CRE is stepping up to the challenge. Unlike large urban offices saddled with high vacancies and inflexible layouts, small office buildings offer adaptability that today’s businesses crave. These properties can be easily transformed into hybrid-friendly workspaces, attracting tenants looking for cost-effective, versatile solutions. As companies rethink their real estate footprints, small CRE provides a nimble, future-ready option.

The Data Speaks for Itself

The numbers tell a compelling story:

• Small CRE (Retail/Industrial): Vacancy rates as low as 4.1%, with strong absorption and rent growth.

• Large Urban Offices: Vacancy rates averaging 13.8% nationally, and over 20% in some tech hubs.

In secondary markets, small CRE enjoys lower vacancy rates, stronger tenant retention, and less exposure to the volatility of big-city real estate. Add in broader trends—like demographic shifts, AI-driven property analyses, and a growing emphasis on sustainability—and small CRE emerges as a diversified, resilient asset class for 2025 and beyond.

Position Yourself for Long-Term Success

As the CRE landscape evolves, small commercial properties offer a unique blend of resilience, value, and adaptability. Whether it’s a neighborhood retail center, a flexible suburban office, or an industrial space in a logistics hub, these investments are proving their worth in today’s dynamic market. By exploring these opportunities, investors can diversify their portfolios, tap into undersupplied markets, and ride the trends shaping the future of real estate.

Don’t let the allure of big-city skyscrapers distract you—small CRE is where the smart money is heading in 2025. Now is the time to position yourself for long-term success in this rewarding and resilient corner of the market. Give me an email or call to help in your search: [email protected]

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