January 24th, 2025
Note: See links at the bottom of this email for some interesting recent report releases from the past week.
1. Colliers issued a "Global Investor Outlook" Report this week that had some interesting takes on the landscape of the US commercial real estate market. In summary, Capital reserves remain high as investors anticipate a favorable market shift, with falling interest rates expected throughout 2025. While a stronger dollar may raise the cost of cross-border transactions, U.S. pricing has adjusted quickly, making acquisitions attractive in key markets. Investor sentiment is bolstered by clearer economic policy post-election, and long-term demographic trends promise sustained demand growth, particularly in multifamily and industrial sectors. Core office assets remain stagnant, but industrial and multifamily markets continue to thrive, especially in high-demand regions like the Southeast and Southwest. Data centers are also drawing substantial investment due to soaring demand, particularly from hyperscalers and AI, while life sciences assets are seen as strong long-term opportunities despite short-term market pressures.
2. Multiple market surveys came out this week, all signaling improving sentiment. According to CBRE's 2025 U.S. Investor Intentions Survey, 70% of commercial real estate investors plan to buy more assets in 2025, with a focus on multifamily, industrial, and retail sectors. Investor optimism is tempered by the challenge of volatile long-term interest rates, but 54% expect overall investment activity to recover by mid-2025. Dallas and Miami/South Florida remain the top markets, with Boston, Washington D.C., and San Francisco also gaining attention. Value-add and core-plus strategies are the most popular, while investor interest in office assets has grown due to increased certainty around office utilization. Debt strategies are shifting towards mortgage financing, mezzanine, and distressed debt, although many investors are prioritizing direct real estate equity investments. Despite elevated interest rates, investors are confident in deploying capital, with a focus on high-quality assets and selective market choices as the real estate cycle evolves.
3. Fannie Mae reported this week that they provided over $55B in financing for multifamily in 2024. They noted that their Green Financing saw a 101% YOY gain, closing $15.1B in 2024, up from $7.5B in 2023. They also committed approximately $4B in net equity to LIHTC investments since re-entering the market in 2018.
4. Office conversions are rapidly gaining pace, 179 are planned in 2025, up from 103 in 2024. CBRE Chief Economist Richard Barkham believes that more flexibility in land-use planning and tax relief to accelerate the conversion of obsolete buildings would be extremely beneficial to cities and their inhabitants as well as developers.
The theme remains cautious optimism with many investors having shifted strategy as the current cycle evolves to focus on long-term fundamentals in key markets as investments can no longer rely on cheap capital. The resilience of the US economy and continued strength of consumer spending bodes well, while inflationary pressures, higher for longer rates, and trade policy remain cause for concern.
NOTE: HUD has issued policy updates revising underwriting constraints to pre-2008 levels and introduced a new Middle Income Housing Program. Program changes reducing DSCR to 1.15x and increasing the LTV to 87% for market rate refinances (80% for cash out). Affordable is now constrained by 90% LTV/LTC with a 1.11 DSCR. The Middle Income product is also 90% LTV with a 1.11 DSCR.
News and Notable Reports
