What are the trends, challenges, and opportunities shaping the real estate & construction sector in 2025?

From new regulations and workforce challenges to tariffs and market shifts, our recent webinar explored survey data Schwabe collected from senior commercial real estate and construction leaders in the region in January of 2025. The data is intended to help businesses and individuals in the industry adapt to a rapidly evolving economic landscape. Below is a summary overview of the topics covered during the webinar.

Regulatory Changes

Regulatory updates in Washington and Oregon are poised to have a major impact on development strategies and investor confidence.

Washington introduced a new rent control law, capping rent increases at 7% plus the Consumer Price Index (CPI), with a maximum annual increase of 10%. While new construction is exempt from this regulation for 12 years, the law is already causing financiers to pull back on multifamily housing projects. To counterbalance these restrictions, the new law requires cities to cut certain impact fees by 50%.

Transportation and labor regulations are also undergoing changes. Higher state gas and vehicle taxes aim to improve road infrastructure, while new laws expand unemployment benefits to striking workers and adjust family medical leave requirements. Zoning changes favor higher-density middle housing and require cities to adopt streamlined lot splitting processes to make residential projects more viable.

Meanwhile, Oregon is also moving forward with legislation aimed at reducing regulatory barriers to housing development. Proposals to decrease engineering site plan review timelines and to incentivize infrastructure improvements are in the works. Several bills also propose financing initiatives like low-interest loans and grants, aimed to encourage construction of infrastructure and housing to alleviate the housing shortage.

Click here for a PDF summarizing the legislation that was highlighted during the webinar.

Tariffs and Rising Material Costs

The rising cost of materials, driven by tariffs, remains a key concern for the construction industry. Currently, unless subject to exceptions or exemptions, all imports are subject to a 10% baseline tariff, with steel and aluminum carrying an additional 25% duty. Further tariff hikes may be on the horizon, with ongoing investigations into the import of copper and lumber potentially leading to additional duties by late 2025.

To counter these cost pressures, companies may want to take proactive measures. Pre-ordering materials before hikes take effect, implementing escalation clauses in contracts, and reviewing provisions related to risk-sharing, taxes, and change orders can help mitigate the financial impact of rising costs. These strategies could be critical as businesses navigate an unpredictable pricing environment.

Workforce Challenges in a Tight Labor Market

Labor and workforce challenges are proving to be another pressing issue for the sector. Rising hiring costs and immigration constraints are making it increasingly difficult for companies to attract and retain skilled workers. Employers face the added challenge of heightened enforcement of I-9 compliance, increasing the risk of worksite immigration audits or raids.

Ensuring workforce stability requires a multi-pronged approach. Conducting compliance audits to address potential vulnerabilities, offering competitive pay and benefits, and fostering a supportive work culture can help businesses remain an attractive option for employees. Additionally, addressing common wage and hour compliance issues, such as accurate timekeeping and proper worker classification, is essential for avoiding costly fines or lawsuits.

Popular Project Types and Market Trends

Our recent survey highlighted a clear trend toward mixed-use developments, which integrate residential, commercial, and recreational spaces. These projects are currently the most in-demand, with 63% of responding firms focusing on such developments. Multifamily housing also continues to be a priority in Washington, though development is slowing in Oregon due to reduced financing opportunities and broader economic uncertainty.

Another notable trend is the ongoing shift from urban to suburban development. Lower costs and stronger demand have made suburban markets like Central Oregon and Southwest Washington especially attractive. Improved perceptions of public safety in these areas have further bolstered their appeal. However, suburban growth is not without its challenges. Infrastructure limitations remain a notable issue in these regions, requiring innovative solutions to meet growing demand.

Interest Rates and Economic Uncertainty

Interest rates remain a critical concern for companies operating in real estate and construction. Over 50% of survey respondents identified rising borrowing costs as a major challenge impacting project financing. Since January 2025, there have been modest decreases in interest rates, but market volatility continues to create uncertainty.

Faced with these challenges, many firms have adopted a cautious approach. Project acquisitions are being put on hold, and companies are tightening their budgets to reduce exposure to financial risks. This conservative stance is expected to persist as businesses wait for signs of greater stability in borrowing costs and market conditions.

Preparing for the Future

Economic pressures in the industry this year are driving companies to rethink traditional strategies, and those that remain forward-thinking will be best positioned to thrive. While suburban markets and mixed-use developments offer avenues for growth, success may depend on the ability to be agile, informed, and proactive.

This article does not constitute legal advice. For legal advice regarding ‎your situation, you should contact an attorney.