Commercial Real Estate Trends

Apartment rent growth is slowing crawling back upward, inching up to a 21-month high of 1.1% year-over-year as of March 2025 thanks to robust demand starting to catch up with high supply. It's still very much a renter's market -- with a large number of units in active lease-up offering concessions + above-normal market vacancy. But the tide might be showing some early signs of shifting again. Good news: Wage growth is still far outpacing rent growth -- especially among younger workers more likely to be renters. Wage growth has outpaced new lease apartment rent growth for 27 straight months and counting. That's a win/win for renters and investors, widening the demand funnel. Notably: Class A apartment rent growth (excluding lease-ups) is rebounding first, with effective asking rents up 2.2% year-over-year on a same-store basis. By comparison, same-store rents were up 1.1% in Class B and down 0.4% in Class C. The latter group has been weighed down by high-supplied markets, where Class C vacancy has picked up and rents have fallen as the filtering effect incentivizes renters to move up market. On a market level, YoY rent change levels accelerated in 90 of the nation's 150 largest metro areas between February and March. That pickup was fairly broad, spreading from big coastal markets like New York to smaller Sun Belt boom markets like Charleston, and many others in between. Other key markets showing material upticks: Dallas/Fort Worth, Raleigh/Durham, Jacksonville and Minneapolis. Also trending notably upward (though still negative on rent change, just less negative than previously) include ultra high-supply markets like Salt Lake City, Charlotte and Austin. Meanwhile, the rent growth leaderboard remains dominated by lower-supplied markets across the Midwest and Northeast. Among larger markets, Kansas City led the way at 5% followed by Chicago and Pittsburgh. Another one climbing up leaderboard is San Jose (3.9%) as tech workers return to Silicon Valley. Obviously, there are a lot of big questions about the state of the economy going forward. That puts a big wrench in any forecast. But if the economy holds up as supply drops off, we could see rent growth continue to re-accelerate -- in line with most forecasts for 2025. We'll see...

Moody‘s expecting massive losses for US office properties 🙄 Bloomberg reports on the latest gloomy forecast for a battered sector: "Office-vacancy rates are expected to rise to 24% from 19.8% in 1Q2024 in 🇺🇸, reducing revenue for office landlords by between $8 billion and $10 billion when combined with the impact of lower rents and lease turnovers, the authors of the report said. That, in turn, could translate into 'property value destruction' in the range of $2️⃣5️⃣0️⃣ billion, according to Todd Metcalfe, Moody's associate director of commercial real estate (CRE) forecasting, and Thomas LaSalvia PhD, Moody’s head of CRE economics. The figures illustrate the gloomy prospects faced by property owners and lenders as employers continue to jettison square footage or shift from multi-year leases to shorter-term and more flexible co-working arrangements. A full 8️⃣5️⃣% of North American organizations polled by brokerage JLL have implemented hybrid work, and occupancy across offices in major US cities is stuck at about 5️⃣0️⃣% of pre-pandemic levels. Wavering demand and increased borrowing costs have slammed office valuations, especially among older buildings. 'The argument for maintaining or even increasing remote work practices remains compelling for many businesses,' the Moody’s authors said. 'If productivity remains stable and costs can be reduced by forgoing physical office spaces, the rationale for mandating in-office attendance diminishes.' Moody’s analysis focused on white-collar sectors that have highest work-from-home rates and also account for the lion’s 🦁 share of office property in the US, such as the finance, information, real estate and administrative sectors. It controlled for those who worked from home before the pandemic, and accounted for the ongoing decline in office space allotted per worker, which began after the 2008 financial crisis and has accelerated since then. 💡 Using multiple sets of government and academic data including the Survey of Working Arrangements and Attitudes, Moody’s determined that office workers today need about 1️⃣4️⃣% less office space than they did before the pandemic. The figure corresponds to research from the McKinsey Global Institute, which concluded that there will be 1️⃣3️⃣% less demand for office space in a typical city globally by 2030. McKinsey & Company also found that office-property values will decline by anywhere between $800 billion and $1.3 trillion over that time period. Eventually, the Moody’s authors said, vacancy rates will plateau as enough offices are torn down or converted to other uses like warehouses or residential property. 'Right-sizing will continue over the next decade as the market shakes out less efficient space for flexible floorplans that support our relatively new working habits,' the report said." (+++Opinions are my own. Not investment advice. Do your own research.+++) Tap the bell 🔔 to subscribe to my profile & you'll be notified when I post. 💸

I recently had the opportunity to speak with Sumit Lakhani on The Corner Awfis podcast. We had an honest conversation about how much the commercial real estate space has changed over the last few years - and what those changes mean for developers, occupiers and employees alike. One of the biggest shifts we have seen is how companies now think more carefully about the kind of office spaces they want. There is a growing preference for high-quality buildings in multiple cities, and a clear focus on working with partners who can deliver long-term value. The market has become more selective, and that’s pushing everyone to raise their game. We also spoke about how tenant needs have evolved since the pandemic. Earlier, office design was mainly about fitting in more desks. Now, companies are looking for spaces that help people collaborate better, give them flexibility and make them want to come to the office. Many of our clients are redesigning their workplaces to include more open areas, creative corners, and layouts that feel less rigid and more human. There is also been a big focus on the overall experience we offer. Things like having more food and beverage options, clean and well-designed common areas, wellness zones, and better indoor air quality are no longer optional - they are expected. We did a survey with our clients to understand their top five priorities, and we have started making sure every project meets those needs. Sometimes, small things can make a big difference in how people feel at work. When I think about my 26 years in this industry, I believe the last few years have brought some of the most significant changes I have seen. The only other moment that felt this transformative was in the early 2000s, when India’s IT sector began its rise and brought in a new wave of office demand. What’s happening now may be even more meaningful, because it’s not just about demand - it’s about rethinking how offices function, what they stand for, and how they support the people who use them. A big thank you to Sumit and the team at Awfis Space Solutions Limited for hosting this conversation. It’s important to pause and reflect on how much has changed - and how much opportunity lies ahead.

Indian real estate is entering a decade in which capital is becoming more institutional, our skylines are getting taller, and steel is quietly becoming the backbone of serious development. 1.⁠ ⁠Institutionalisation and governance Bank lending to real estate has climbed from about ₹4.6 lakh crore in March 2024 to roughly ₹5.2 lakh crore in March 2025, and further to around ₹5.7 lakh crore by November 2025, a growth of about 13.7 per cent with momentum holding through FY26, as per RBI sectoral data. Add to this five listed REITs with asset values of around ₹2.3 lakh crore and REIT units set to be treated as equity related instruments from 2026, and you can see real estate getting firmly wired into India’s mainstream capital markets. 2.⁠ ⁠Increased vertical developments Higher FSI in major cities is now showing up visibly, from 70 metre data centres to multilevel in city warehouses. Data centre capacity is expected to move towards 1.7 GW by 2026 and around 3 GW by 2030, with edge data centres projected to triple by 2027, making vertical, high load structures inside city grids a familiar part of the skyline. 3.⁠ ⁠Rise of inevitable steel structures Building and construction already account for a little over half of India’s steel consumption, and this share is expected to rise with sustained urban and infrastructure spending. As speed, precision, and flexibility become non-negotiable, structural steel, composite systems and pre-engineered components will increasingly be the default choice for high-rise, high-load assets like data centres, vertical warehouses and next-generation offices. For anyone building for the next decade, the real conversation is no longer only about sales velocity and price appreciation; it is about institutional-grade governance, vertical product thinking and steel-led construction ecosystems, backed by hard data from the Reserve Bank of India and leading industry research. #realestate #trends #2026

Wrapped up my latest visit to New York City, and it reaffirmed a vital truth: the iconic skyline, while breathtaking, also represents a significant carbon challenge. As buildings contribute over two-thirds of NYC's emissions, their transformation is crucial to achieving the ambitious 2050 goal of an 80% reduction.   Digital technologies offer a feasible and cost-effective solution. Consider these numbers:   Digital building management alone can achieve 42% emission reduction in offices, with payback periods of less than three years. Electrification and microgrids with renewable energy sources can further reduce emissions by 28%.   The combined impact? 70% reduction in operational carbon emissions. Achievable today, with a quick return on investment.   Now, imagine the impact at scale: New York City's iconic skyline, gleaming with clean energy. Let's make it a reality.

Urban space sets sail with a new archetype of public space: a “parkipelago” Floating islands are scattered throughout the Copenhagen Harbour, open to boaters, swimmers, stargazers, and wildlife alike. Designed to bring wilderness, whimsy, and climate resilience into the heart of the city, each island is hand-built using traditional boatbuilding techniques and recycled, sustainably sourced materials. These mobile micro-ecosystems are planted with native trees and grasses, and their submerged anchor points support marine life—offering a dual-purpose habitat that’s both above and below water. As the islands migrate seasonally between underutilized and newly developed harbour zones, they spark new social and ecological activity and propose a flexible future for urban waterfronts. The project has gained global acclaim for its innovative approach to public space, earning awards for both social and environmental design. Project Info Project: Copenhagen Islands Location: Copenhagen Harbour, Denmark Designer: MAST Category: Public Space Timeline: Ongoing Design & Construction: Hand-built in Copenhagen’s South Harbour boatyards Collaborators: Copenhagen Municipality Awards: – Taipei International Design Award (Public Space) – Taipei International Design Award (Social Design) – Finalist, Beazley Design Prize (London Design Museum) – Finalist, Danish Design Prize #CopenhagenIslands #FloatingPublicSpace #UrbanNature #ClimateResilientDesign #SustainableUrbanism #PublicSpaceInnovation #GreenArchitecture #SocialDesign #CopenhagenDesign #EcoArchitecture #CityOnWater #Parkipelago #DesignAwards #LandscapeArchitecture #FloatingIslands #UrbanEcology #AdaptiveUrbanism

👷♂️ Picture this: a robot tiling the floor space of four tennis courts — 1,000 m² — in just one day. These robots are not prototypes. They already exist. And they’re a perfect example of where AI-driven automation shines: Repetitive. Physically punishing. Unforgiving of error. But here’s what really matters: Every square meter a robot lays is also reshaping the skills mix on site. We gain speed, precision, and fewer injuries… but we risk sidelining the tradespeople whose craft built our cities. The untold story? The winners won’t be the robots alone — but the humans who move up the value chain: > Robot maintenance & calibration > Quality assurance & oversight > AI-driven project management If we don’t invest in these upskilling pathways now, automation becomes a zero-sum game. If we do, it becomes a win-win — safer sites, faster delivery, and jobs that value human creativity and judgment over back-breaking repetition. 💡 My take: Automation shouldn’t erase workers. It should elevate them. The question is whether governments, companies, and unions act fast enough to make that real. 👉 Have you seen an effective reskilling program in construction (or any hands-on industry) that could be a model here? #AI #Automation #FutureOfWork #Construction #Upskilling

Me and my colleagues were discussing something interesting this week. Companies are pushing return-to-office. But office vacancy rates are still near record highs. That’s when it hit us: 𝗧𝗵𝗲 𝗼𝗳𝗳𝗶𝗰𝗲 𝗶𝘀𝗻’𝘁 𝗱𝗶𝘀𝗮𝗽𝗽𝗲𝗮𝗿𝗶𝗻𝗴. 𝗜𝘁’𝘀 𝗯𝗲𝗶𝗻𝗴 𝗿𝗲𝗱𝗲𝗳𝗶𝗻𝗲𝗱. In the U.S., office vacancy across major markets has climbed to around ~21%, up from roughly 17% in 2020, even as companies encourage employees to come back. Workers now spend ~20% of working days at home, compared with about 5% before the pandemic, showing how hybrid work has structurally shifted attendance. So demand hasn’t fully recovered, even with return-to-office pushes. And the shift isn’t just about how much space is needed. It’s also about where. Downtown offices in many cities are seeing higher vacancies, while suburban locations and newer collaborative spaces are holding up better. Companies aren’t eliminating offices, they’re shrinking footprints, redesigning layouts, and prioritizing shared collaboration areas over individual desks. The data explains why. Globally, the pattern looks similar. Vacancy rates in many global business districts have crossed ~18%, the highest in more than a decade. Hybrid work is now identified as the primary driver of reduced demand. That’s a structural change. 📍Less daily attendance → fewer desks needed 📍More hybrid schedules → shared seating 📍Flexible work → reduced long-term demand Even office design is shifting. Average space per employee has already dropped from ~190 sq ft in 2000 to ~155 sq ft in 2023, reflecting hybrid work and denser layouts. And the ripple goes beyond real estate. 👉🏻 Higher vacancy affects downtown retail 👉🏻 Commute patterns change 👉🏻 Public transport demand shifts 👉🏻 City tax revenues come under pressure The office isn’t going away. But it’s no longer a default place where work happens every day. It’s becoming a collaboration hub, used selectively, not continuously. That’s the real shift. Not disappearance. Redefinition. #FutureOfWork #HybridWork #OfficeSpace #WorkplaceTrends #CommercialRealEstate #BusinessStrategy

If we at KKR had a mantra for RE Private Equity investing going forward, it would be ‘Back to the Future.’ The current landscape mirrors the early days of the industry, highlighting both a continuation and acceleration of trends from the past 10-15 years. We are once again in a time of dislocation, where new sources of opportunistic capital are needed to replace debt and core equity capital that has become scarce. The recent Fed tightening and post-pandemic pressures on the Office sector have led to a 22% drop in asset prices since Q1 2022, reminiscent of the 21% decline from 1989-93 and the 36% during the GFC. Also similar to the RTC era is the flight of lower-cost bank leverage and core equity capital. On the equity side, cumulative five-year outflows from open end core funds are now the largest in the history of the industry, as a risk-adverse investor base has become more wary of poor backward-looking performance. We view this flight through a positive lens, as it creates space for Opportunistic equity capital to fill the void, particularly as cap rates have risen, creating the potential for Opportunistic returns from assets with more Core-like risk profiles. Read more about Real Estate Equity and Debt as well as other asset classes at https://go.kkr.com/4dARQqR

US commercial real estate delinquencies continue to rise, in a way you normally only see during a recession, particularly for office but the increase in multifamily apartment and hotel delinquency rates are worth being aware of too. The chart on the right hand shows the proportion of loans maturing before 2027 where the net operating income from the property doesn't cover the interest costs plus any debt that needs to be rolled. The grey bars don't have enough income to cover their interest and principle rolls, although one should also consider that the blue bars could be vulnerable if income (rent) was to fall during a recession and that not be offset but sufficient rate cuts. Looking at the two charts together, the multi-family apartment sector stands out as an area of potential concern along with the well known problems in the office sector. A key consideration for investors in the debt backing these properties is the loan to value (LTV) ratios. They vary but average around 65% for the office sector, with values having already declined. For the apartment sector LTVs average about 50%. For industrials LTVs are as low as 40% on average. That means prices can fall quite a long way before debt investors would take a loss. The initial concern therefore is probably around downside risks to the value of equity stakes in some commercial real estate properties if asset owners can't meet their debt obligations and are forced to sell. Though lenders may not be keen to force a fire sale, which could potentially buy some more time. Looking at charts like this you can see why there are many in private markets who are hoping for steep rate cuts without a recession (more on private equity and credit later this week). The risk is that the steep rate cuts come but with an accompanying recession. Charts are from the ever excellent JPMAM Guide to Alternatives.