10 Critical Questions for
2025
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Will the capital markets take off in 2025?
What does a Trump 2.0 presidency mean for the economy and CRE?
What can we expect for Treasury rates considering recent economic and political developments?
Are CRE debt conditions expected to improve in 2025?
Will the potential new tariffs affect U.S. port volumes?
Is there demand for office space that isn’t "top-tier”?
Could recent store closures lead to a more balanced retail market?
How will life sciences venture capital funding shape CRE in 2025?
Will the demand for apartments maintain its momentum?
Can the data center boom sustain its momentum amid power accessibility challenges?
In a sense, yes. Capital markets are gaining momentum, setting the stage for growth in 2025. The rate-cutting cycle is driving equity capital off the sidelines, fueled by greater confidence in fundamentals and NOI, and the realization that this is a window of opportunity.
7% and 25%
Alternatives are drawing increased investor interest and now make up over 7% of open-end core funds, up from 4% a decade ago, and represent 25% of total U.S. transaction volume. Income-focused sectors like industrial and multifamily are also capturing outsized interest, now making up 37% and 28% of open-end diversified core (ODCE) funds, compared to 15% and 25% a decade ago. Office is also gaining momentum with sales volume up 14% year-over-year the first three quarters of 2024.
WHAT TO WATCH
YTD annualized Core closed-end fundraising is more than triple the amount fundraised in 2023, hitting $10.2B YTD annualized compared to $2.5B last year. Core momentum gives Value-Add and Opportunistic investors clearer visibility into their future exits (selling to core funds). It also drives urgency for Value-Add funds to act before the market becomes even more competitive. The gradual resurgence of core capital will help to resolve open-end fund liquidity issues, adding fluidity to the broader CRE investment eco-system.
Of the $238B in dry powder allocated to closed-end vehicles, the majority—approximately 68%— is concentrated on Opportunistic and Value-Add investment strategies. Core dry powder measures at $15.1B, representing 6.3% of dry powder. Core strategies often become more prevalent after periods of market dislocation when investors seek to preserve returns and minimize losses.
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Fed Pivots: the Next Chapter for CRE
Market Matters – a Monthly Synthesis of Debt and Capital Markets Themes
Source: Preqin, NCREIF, Cushman & Wakefield Research
Statements herein represent Cushman & Wakefield predictions only. Actual results could vary based on unforeseen circumstances.
North American closed-end funds are sitting on $238B in dry powder, ready to be invested as valuations and pricing stabilize. Evidence of this deployment is already emerging, with the level of dry powder shrinking by 38% from its 2022 peak. Fund managers are steadily channeling this capital into promising new investment opportunities.
$238B
Following the Flows – Where Capital is Headed
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Related Insights
Many of the changes to policy have the potential to exert offsetting forces on macroeconomic growth and inflation, making it hard to predict how this election will impact property performance.
2%
Despite threatening extreme tariffs during his 2016 campaign, President-elect Trump only implemented modest increases, raising the effective tariff rate from 1% to 2%.
With a soft landing in progress, two major unknowns remain: the path of monetary policy and the extent to which President-elect Trump might escalate tariffs. Pay close attention to what policymakers do rather than what they say.
Whether we look at sales volumes, leasing or total returns historically, there is little to no correlation between CRE outcomes and presidential elections (or midterm elections, for that matter). Commercial property has performed well under both Democratic and Republican presidents, and under both unified and divided government.
Trump 2.0 & Implications for Property
Source: U.S. Department of Treasury, Federal Reserve, Moody’s Investor Services via the Federal Reserve Bank of St. Louis FRED
The compression in corporate bond spreads, reflects further cementation of views that a soft landing is underway and the outlook for corporate earnings has improved.
20 bps
Higher-for-longer appears set to persist even longer, accompanied by another year of heightened bond market volatility.
15
In December 2024’s FOMC Summary of Economic Projections, 15 participants saw upside risks to core PCE inflation, while 4 saw balanced risks. This contrasts with September, when only 3 saw upside risks and 16 saw balanced risks.
Data dependence at the Fed combined with policy uncertainty is the perfect recipe for bond market volatility. Investors should expect this to continue in 2025. Weekly initial unemployment claims, along with monthly job and inflation data, will be most pivotal to how bond markets evolve now that a stronger economy and Trump 2.0 presidency have been priced in.
October 2024 ranked as the fourth most volatile month for the 10-year Treasury market since 2010, exceeded only by September 2011, July 2022 and March 2023. The three-year span from 2022 to 2024 has witnessed greater market turbulence than any single year since 2011.
Source: Federal Reserve, National Association of Business Economists
The upward revision to the median consensus forecast for the Q4 2025 10-year Treasury note between September and November 2024.
29 bps
Yes. Despite bond market volatility, the Fed’s easing cycle will unfold gradually, helping to bring in the short end of the yield curve. This will tighten CRE debt costs, particularly for floating rate loans, as lender appetite grows across CMBS, private credit, debt funds and insurance company lenders.
150-200 bps
Capital markets perform well when CRE fixed-rate debt spreads are 150–200 bps over Treasury yields (2017–2019 average was 154 bps). As of Q4 2024, secured spreads have tightened approximately 40-50 bps from their 2023 peak and are now in the low 200-bps range.
As banks manage the inverted yield curve and portfolio performance, their CRE lending will remain selective through H1 2025. They will focus on troubled assets, writing off loans to clear balance sheets, creating opportunities for loan sales and distressed asset acquisitions. Looking ahead, two factors could boost bank liquidity and capital: the possible un-inversion of the yield curve in late 2025/early 2026, allowing banks to borrow short and lend long; and the potential regulatory changes under a Republican administration, including diluting Basel III capital requirements. Relatively looser capital controls could drive increased lending in the chapter ahead.
The CRE lending landscape is broadening, with more activity originating from private credit and debt funds. Debt funds now account for 16% of YTD debt originations, up 72% from pre-pandemic levels, nearing CMBS’s lending share at 18%. Institutional investors see credit as under-allocated, especially in a high-interest-rate environment where it offers equity-like returns with lower risk. Debt funds are set to gain more fundraising traction as private and institutional investors diversify their portfolios into these channels.
Source: Green Street, MSCI Real Capital Analytics, Cushman & Wakefield Research *Lender types include Bank, CMBS, Financial (Debt Fund), Government Agency, Insurance, Pension Fund, and Private sources.
The CMBS market is back: YTD Non-Agency CMBS issuance is up 108% from its 2023 low. A key player in the broader CRE debt space, CMBS provides liquidity, helps balance-sheet lenders offload deals and supports large financings. It accounts for 18% of YTD originations across lenders.* CMBS’ share of total lending now exceeds the pre-pandemic 2017-2019 average of 13%, reflecting diversification in CRE debt markets.
108%
Deciphering Today’s Debt Markets
Yes. Shippers are rushing to import goods into the United States ahead of potential new tariffs. Import volumes have surged at most key U.S. ports in the second half of 2024.
5M
In September and October 2024, over five million Twenty-foot Equivalent Units (TEUs) were imported into the U.S., the second-highest for this period on record, just 0.5% below 2021. Since early 2024, import volume has risen 13.1% year-over-year, fueled by stronger totals since July.
In 2024, Asian 3PL occupiers have significantly increased leasing activity in key port-adjacent locations, aiming to meet U.S. consumer demand for goods while avoiding prices hikes from new tariffs. Southern California, New Jersey, and Savannah have emerged as hotspots, collectively signing over 13 million square feet of deals by the end of Q3 2024—a remarkable 62% growth compared to the total for 2023.
2024 North American Ports Update
Source: Various port websites, Trade.gov, Moody’s Analytics
In 2018, U.S. imports rose by 9.6% compared to 2017 as shippers rushed to bring goods in before new Trump administration tariffs took effect. This was followed by a 2% decline in import value in 2019.
-2%
Yes. Even with the flight-to-quality trend, over half of all class B & C office assets are nearly 100% occupied. There are still value-sensitive occupiers in the market looking for the best “deal.”
600 bps
Removing the bottom 10% of office product would boost occupancy by 600 bps. The average occupancy rate for the rest is about 85%, aligning with the 25-year historical norm. Most office assets are performing reasonably well, with most issues concentrated in the lowest quality segment of the market.
It’s not just top-tier office buildings seeing occupancy gains since 2020. Half of U.S. office buildings have seen vacancies decline, and over 30% of buildings are fully occupied. Value-sensitive occupiers are still searching for the best “deals,” and more will need to consider other options as new, top-tier space becomes scarce. The construction pipeline is now a quarter of its 2020 peak. After averaging 50 msf per year since 2018, the U.S. will deliver less than 10 msf annually in 2026, 2027 and 2028, leaving occupiers with fewer choices for new, high-end space.
Law firms have been the most resilient occupier sector, accounting for 14 msf of leasing activity three years in a row. This is particularly important for gateway and large secondary markets with a large legal sector presence, such as New York, Washington, DC, Atlanta and Dallas.
Legal Sector Leasing Insights
U.S. Office MarketBeat
Source: Cushman & Wakefield Research
Still, many occupiers are willing to pay for a high-quality experience. The rent premium in top-tier office assets is 41% higher than the rest of the office market ($46.26 vs. $32.89).
+41%
Current Challenges in Downtowns & Occupier Location Strategies
Reimagining Cities
Yes, but only slightly. Retail store closures outnumber openings for the first time in three years, reducing competition among tenants. This shift is creating more opportunities to secure prime spaces as backfill options become increasingly available.
7,077
The number of publicly announced retail store closures in 2024—the highest total since 2020. Right-sizing is not specific to one industry—brands closing the most locations span drugstores, home and office, apparel, convenience and even discount stores.
The resilience of macroeconomic indicators like retail sales obscures a challenging environment for retailers. Consumers are more selective with their shopping habits, creating winners and losers, as evidenced by recent corporate earnings. High interest rates and possible tariff changes have many retailers on the defensive. More bankruptcies and store closures are expected in 2025, leading to slower rent growth and more vacancies.
Retailer bankruptcies and store closures can disrupt retail centers in the short term but also present opportunities. Re-tenanting spaces allows for replacing struggling retailers with ones that boost foot traffic and desirability of a center. New leases can also increase rental income; for instance, Green Street reports a 40% rental increase on backfilled Bed, Bath & Beyond locations. While capex costs and vacancy downtime reduce these gains, the strong retail market suggests closures will be less disruptive than in prior cycles.
Q3 Retail Marketbeat
Source: Coresight Research, CoStar
The total square footage of retail space currently under construction—down 44% from the 2015-2019 average, even as retail vacancies remain historically low across most shopping center formats. Increased store closures will move the needle directionally, but not meaningfully, and vacancy rates will remain tethered at low levels.
45.4M
Venture capital funding grew strongly in 2024 and is expected to rise further in 2025. This increase will likely drive leasing activity as companies resume growth after a period of reduced funding.
+27%
Life sciences venture capital funding rose 27% year-over-year through October 2024, reaching $26B—already surpassing 2023’s total of $25B. Improved investor sentiment could drive stronger funding in 2025, giving companies an opportunity to expand after recent limited funding. Headwinds, however, exist that could impact both sentiment and activity.
Funding for emerging technologies accelerated in 2024, with $2.1B invested, up 62% year-over-year. While most VC funding targets oncology research, AI-powered drug discovery is driving major growth. Investor interest in AI is expected to grow as companies use it for drug development, analytics, clinical processes and more. Obesity research funding soared from $46M in 2023 to $927M in 2024, driven by the success of obesity drugs. Growth is expected in 2025 as more companies partner with pharma companies. This funding boost suggests increased leasing activity in these high-growth areas next year.
Series A funding in the first round more than doubled year-over-year, surging from $2B in 2023 to $4.5B, as investors re-entered the startup space. Small startups have increasingly leased space in accelerator/incubators, but with additional funding anticipated next year, they may begin transitioning to independent spaces in 2025.
Life Sciences Fit Out Cost Guide
Life Sciences 1H 2024 Update
Source: Pitchbook, Inc.
Megadeal activity surged in 2024, with funding for $100M+ deals up 57% through October. A total of 88 deals closed YTD, compared to 56 in the same period in 2023. Early-stage company megadeals rose 72%, reflecting improved investor sentiment. If this trend continues, early-stage leasing could grow further in 2025.
+57%
DEFINITIONS
Series A funding is an investment in a startup, sometimes following a smaller, initial seed funding round. In order for a company to be considered for series A funding, they should be able to show progress in building their business model and demonstrate potential for growth and revenue generation.
Yes, 2024 is on track to be the second-best year for multifamily absorption since 2000. The timing is ideal, as a surge in construction over the past 24 months was met by strong apartment demand, keeping vacancies in check in 2024. With new construction slowing, multifamily fundamentals are poised to strengthen going into 2025.
+70%
With 440,000 net move-ins, apartment demand in 2024 will rise over 70% from 2023 and exceed the pre-pandemic average by 75%. This growth is driven by a strong labor market, increased international migration, and ongoing affordability challenges in the for-sale market, which have led to a 230-bps decline in the homeownership rate for households under 35 years old.
More than half of the nation’s absorption has been in the Sun Belt region, which saw its demand base grow by more than 4% over the last year. If current demand levels are sustained going forward, this region—which has been the epicenter of the nation’s supply boom—will quickly put concerns of overbuilding to rest.
While multifamily rents have been mostly flat for two years, the average cost of a mortgage is up more than 10% during that same time period. That dislocation between the for-sale and for-rent is remains the widest in modern history, helping fuel demand for apartments.
U.S. Multifamily MarketBeat
Unpacking Multifamily Supply Risks and Demand Booms
Source: CoStar, Cushman & Wakefield Research
Multifamily completions are expected to drop by more than a third next year. Even if apartment demand pulls back somewhat, overall vacancy levels will likely improve in the year ahead, helping owners regain some pricing power.
-36%
Top Trends Across Cushman & Wakefield’s Multifamily Portfolio
Yes. Emerging and tertiary markets are next up in the rolling data center boom.
511%
Hyperscalers, colocation operators, and developers are turning to emerging and tertiary markets with more available land and power capacity to support future growth and meet demand. Land acquisitions by hyperscalers in these markets have risen 511% since 2022 (the same year that OpenAI released Chat GPT), compared to an 11% increase in established data center markets.
Interest in onsite power generation is growing as data centers face power availability challenges. This has renewed U.S. interest in nuclear energy, catalyzing the research and development of small modular reactors. Some hyperscalers plan to use this technology to power data centers in areas with limited power access.
Established, densely populated markets still command higher prices than emerging areas. These markets offer key advantages like diverse fiber networks, low latency, robust infrastructure and incentives. Urban data centers are close to end users, making them ideal for applications like autonomous vehicles, IoT, content delivery, financial services, gaming and healthcare. However, their limited availability and urban locations drive fierce competition from non-data center buyers, pushing prices higher.
Americas Data Center Update
2024 Global Data Center Market Comparison
Source: Cushman & Wakefield Research analysis of various sources including, but not limited to, Data Center Hawk, DC Byte, MSCI, CoStar
Colocation operators typically need less capacity than hyperscalers. Many remaining land sites in established markets are unsuitable for hyperscalers are still ideal for colocation developers. While interest in non-established markets has grown 80% since 2022, it has risen 186% in established data center markets.
186%
From AI to Absorption: Office Demand, AI Talent Concentrations, and What it Means for Data Centers
Hyperscalers Apple, AWS, Google, Meta, Microsoft Colocation A data center facility owned by a provider where infrastructure is leased instead of owned, often with multiple other users present. Established Markets Atlanta, Chicago, Columbus, Dallas, North and South Carolina, Oregon, Phoenix, San Francisco Bay Area, Toronto, Virginia Emerging Markets Austin, Denver, Indiana, Iowa, Kansas City, Minneapolis, Nashville, Salt Lake City Tertiary Markets All other markets not mentioned as established or emerging
Data Center development cost guide
