Farms, timberland and other nonfinancial specialty assets can offer compelling financial benefits, while helping to diversify a broader investment portfolio, according to the 2025 Bank of America “Specialty Asset Management Outlook.”

Exploring the evolving market dynamics affecting commercial real estate, farmland, timberland and energy assets, the paper highlighted how real assets are playing an increasingly important role in portfolio diversification, particularly as investors look to position themselves for long-term wealth creation during a rapidly changing market landscape. The bottom line, according to SAM, is that 2025 is expected to provide attractive prospects for well-informed, long-term investors who seek to add real assets to their investment portfolios.

“Characteristics of real assets, such as generally being uncorrelated with traditional investments and serving as a hedge against inflation, are increasingly relevant in the current environment,” said Ken Shepard, a SAM executive at Bank of America Private Bank, in a statement. “For well-informed, long-term investors, 2025 will be a good year to selectively build positions in certain real asset sectors.”

The SAM Outlook took a closer look at four key specialty asset classes: commercial real estate, farmland, timberland and energy.

Commercial Real Estate—Signs of a Turnaround
According to the SAM report, elevated interest rates and high construction costs have sharply reduced new building activity, tightened supply and potentially benefiting existing CRE assets.

Apartments are moving past a supply surplus, with demand supported by low unemployment, shifting demographics and high homeownership costs. In self-storage, rents fell again in 2024, but the decline is slowing—November 2024 showed a 2.4% year-over-year drop in advertised rates. Retail remains strong, with limited new development and steady demand sustaining high occupancy. Offices, however, continue to face headwinds across fundamentals, capital markets and loans.

Encouragingly, the National Council of Real Estate Investment Fiduciaries Property Index rose slightly in the fourth quarter of 2024, and while appreciation has been negative for more than two years, consistent income returns are helping to stabilize performance—suggesting CRE may finally be turning a corner.

Farmland—Evolving, Yet Resilient
After several years of strong gains, farmland values are expected to hold steady or soften slightly in 2025 as the market adjusts to a new normal, according to the SAM report. Even with this shift, farmland continues to stand out as a stable, long-term investment option.

For investors looking to diversify and add resilience to their portfolios, farmland offers a practical and compelling opportunity. Beyond its historical stability, the sector is benefiting from developments such as advances in agricultural technology, growing sustainability efforts and emerging income sources such as carbon credits and renewable energy. As the broader economy continues to shift, farmland remains a unique asset class that can help support both growth and stability in a well-rounded portfolio.

Timberland—Strong Fundamentals, Steady Returns
Timberland stands out as an attractive option for investors seeking low- to moderate-risk alternatives to traditional asset classes, according to the SAM report. A distinct advantage is biological tree growth, which occurs independently of market cycles, providing a natural hedge against economic volatility.

This biological growth, along with timberland’s central role in the sustainable production of wood products, supports the asset’s long-term return potential. Additional benefits include inflation protection, favorable tax treatment and the ability to help reduce overall portfolio volatility.

While timber production remains the foundation of returns, the asset class is expanding its value proposition. New and growing revenue opportunities such as carbon credits, conservation agreements and recreational leases are adding sources of income and diversification. Historically, timberland has delivered stable performance. In 2024, that consistency held firm: The NCREIF Timberland Index posted a 9.9% total return, driven by 7.8% appreciation and 2.1% income.

Energy—Demand Accelerates With AI Growth
U.S. electricity demand is projected to rise 4.7% over the next five years, nearly double last year’s 2.6% forecast, according to filings with the Federal Energy Regulatory Commission. The primary driver is surging power needs from AI data centers. This increase, combined with broader electrification efforts and the reshoring of U.S. manufacturing, is expected to end a decade-long trend of flat U.S. power demand.

At the same time, global energy consumption continues to rise, driven by population growth, increased manufacturing and rising living standards in developing economies. As demand grows, renewable sources like wind and solar are expected to expand rapidly, supported by global decarbonization efforts.

Still, traditional oil and gas remain dominant, supplying more than 75% of global primary energy consumption today. While crude oil markets may face pressure from softening long-term demand, natural gas is well positioned as a transitional fuel—offering reliability, affordability and cleaner emissions than other fossil fuels.