BlackRock Sees CRE Gaining Ground—But Cracks Remain

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Good morning. Commercial real estate is clawing its way back in 2025 with a fourth straight quarter of rising transaction volumes, though structural and economic uncertainties still cloud the outlook.

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• Monetize vacancy: Multifamily owners are boosting income by leasing empty units for furnished mid-term stays, earning up to $2K more per unit each month. (sponsored)

• Mixed signals: CRE sales dipped 5% in April to $22B, as investor demand softened—though multifamily surged while industrial and hospitality lagged.

• Gaining steam: Net lease volume climbed 12.4% YoY to $9.95B in Q1 2025, fueled by private buyers and a spike in sale-leasebacks, despite declining office activity.

• Shed the debt: Regional banks are regaining ground in CRE lending, offloading troubled debt and boosting their market share to 34% as private capital demand softens.

• By the numbers: Specialty REITs led May with 8.2% total returns—outpacing the S&P 500—while telecom REITs slumped despite being 2025’s top performers year-to-date.

• Market share: Private equity now controls over 2.2M U.S. apartment units—10% of total stock—fueling affordability debates in high-rent metros like Tampa and Atlanta.

• Loan strain: CRE loan delinquencies hit 1.49% in Q1 2025—the highest in over a decade—as multifamily struggles and loan growth stalls.

• Conversion boom: A record 70,700 housing units are expected from office conversions in 2025, as cities push incentives despite cost and affordability hurdles.

• Crackdown: Texas has closed a controversial property tax loophole used by affordable housing developers, triggering backlash and expected legal challenges over retroactive compliance.

• Hotspot: Class B industrial properties are seeing outsized demand and returns, as surging rents and limited supply boost landlord leverage.

• Richmond: Lingerfelt and The Davis Cos. have kicked off their second Richmond-area project with plans for the 820K+ sf 7 Hills Distribution Center.

• Deal of the day: Hines acquired 2.5M sf of Class A industrial space in Georgia and Massachusetts for $267M, expanding its U.S. footprint with fully and partially leased assets in key logistics hubs.

• Store expansion: Chains like Burlington and Abercrombie are expanding aggressively, seizing vacant space with smaller, urban-friendly store formats despite broader industry contraction.

• Got books? Barnes & Noble plans to open a new store in greater Seattle this fall, part of its nationwide expansion targeting over 60 new locations in 2025.

• Tariff tension: Retailers from Costco to Nike are hiking prices in response to Trump’s revived tariffs, passing rising import costs to consumers as trade uncertainty and inflationary pressures mount.

• Sublease: Logistics firm Traffic Tech is subleasing its 55K sf East Loop HQ, signaling cooling demand in a sector once seen as an office bright spot amid Chicago’s ongoing space shakeout.

• Hitting the market: Union Investment is putting Dallas’ Texas Capital Center on the market, betting strong demand in Uptown and proximity to mega-projects like Goldman Sachs’ new campus will draw premium buyers back to top-tier office assets.

• Nashville: Office investment in Nashville plunged 63% year-over-year in Q1 2025, with just two sales totaling $25.8M—despite a steady vacancy rate and an active construction pipeline nearly matching Manhattan’s.

• CBD slide: Central business district office demand continues to falter, with vacancy at 19.2% and asking rents down nearly 30% from pre-COVID levels, as shifting federal policies and subdued development add pressure.

• Come on back: Months after Hurricane Helene devastated Asheville, local hoteliers are launching an all-out effort to revive tourism, with renovated properties and community-driven marketing aimed at bringing visitors back for summer and fall.

📈 CHART OF THE DAY