Finding a Firmer Footing: The Case for Commercial Real Estate - Goldman Sachs Asset Management

Goldman Sachs Asset Management's analysis of commercial real estate positions the sector as finding firmer footing, supported by durable demographic and structural tailwinds that are creating meaningful performance dispersion across asset types and geographies. The investment thesis rests on the observation that megatrends—particularly demographics, technological change, and sustainability—are reshaping demand patterns and creating winners and losers within the CRE landscape. In this environment, precise sector and asset selection has become paramount for institutional investors seeking to navigate significant performance variation.

Demographic factors are emerging as a primary driver of CRE opportunity, particularly in rental housing. The combination of elevated mortgage rates and home prices has prompted younger cohorts (Millennials and Gen Z) to extend their rental tenure, shifting preference toward apartment living with modern amenities rather than homeownership. Simultaneously, the aging baby boomer population is generating substantial forward demand for senior housing facilities. These demographic currents are placing the multifamily sector on durable long-term footing, especially as new construction pipelines cool and supply constraints tighten. Necessity-based retail properties, particularly grocery-anchored centers serving these demographic segments, are positioned to benefit from these trends.

International markets, particularly Japan, present a compelling case study in constrained-supply dynamics. Despite Japan's well-documented aging population and deflationary history, residential real estate demand is strengthening across major urban centers. Tokyo and Osaka have experienced population growth of 3.3% and 1.8%, respectively, over the past five years, driven primarily by younger, working-age cohorts. More permissive immigration policies have amplified this effect, with annual net increases in foreign workers now reaching levels comparable to the United States. Coupled with relative affordability, these factors are generating robust residential real estate demand while supply remains constrained—a setup likely to support valuations and returns.

The CRE market's transition to firmer footing underscores the importance of distinguishing between quality tiers and sectors. A pronounced flight to quality is driving performance dispersion, with higher-quality assets likely to outperform lower-quality holdings. Investors must now engage in disciplined sector and asset selection to capture the benefits of demographic tailwinds while avoiding exposure to lower-quality or structurally challenged properties. The opportunity set in 2025 appears to reward selectivity over broad-based CRE exposure.