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Investors Pivot to Smaller Deals as Big-Ticket Properties Lose Steam
While top-tier, institutional-grade properties are shedding tenants, more modest assets in the general commercial category are gaining them.
Jordan B.
April 01, 2025
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Good morning. Investors are shifting focus toward smaller, lower-cost commercial properties as high-value assets face rising vacancies and weakening demand. In today’s market, it’s the more modest investments making the biggest moves.
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🎙️ New Episode No Cap Podcast: Jack and Alex are sitting down with Marc Deluca, CEO of KBS, one of the nation’s largest premier commercial real estate investors, with over $45 billion in transactional volume since 1991.
Market Snapshot
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INVESTOR SHIFT
Investors Pivot to Smaller Deals as Big-Ticket Properties Lose Steam
A growing divide in property demand is pushing investors toward lower-cost commercial real estate as high-dollar assets face softening fundamentals.
Value divergence: In February, prices for small U.S. commercial properties climbed 1.1%, even as prices for high-value assets dropped 1.3%, per CoStar’s Commercial Repeat-Sale Indices (CCRSI). The key driver? Occupancy trends. While top-tier, institutional-grade properties are shedding tenants, more modest assets in the general commercial category are gaining them.
Absorption turns negative: Tenants have vacated more space than they've leased for the first time in more than 15 years, marking a significant shift in net absorption. The investment-grade segment is taking the brunt, with a projected 12-month net negative absorption of 4.5 MSF through March. General commercial properties, in contrast, are still in positive territory, with 3.7 MSF absorbed over the same period.
Changing buyer preferences: Buyers are following the performance split. In six of the past 24 months, dollar volume in general commercial repeat sales met or exceeded that of investment-grade deals—a milestone that hadn’t occurred between late 2009 and the end of 2022.
Growth gap widens: Since February 2020, the equal-weighted CCRSI, which tracks smaller, more frequent deals, is up 33%, easily outpacing inflation. The value-weighted index—heavily skewed toward pricier transactions—is up just 8% over the same span, well behind the 23% growth in the Consumer Price Index.
➥ THE TAKEAWAY
Bigger isn’t better: As top-tier properties battle rising vacancies and sluggish demand, investors are finding value and resilience in the smaller, less flashy corners of the CRE market. In this cycle, being small might just be the new smart.
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✍️ Editor’s Picks
Tax surge: NYC’s real estate-related tax revenue hit a record $37B last year, driven largely by commercial property.
Fundraising framework: Unlock the secrets to successful real estate syndication using targeted marketing, email list building, and AI-driven techniques. (sponsored)
Testing scandal: A former executive is suing the Appraisal Institute, alleging it knowingly provided fraudulent test scores to state regulators for years, potentially licensing unqualified appraisers and punishing those who had passed.
Mortgage merger: Rocket Companies is set to acquire Mr. Cooper in a $9.4B all-stock deal, creating a mortgage giant that will service one in every six US home loans.
Leadership change: Nuveen has named longtime executive Chad W. Phillips as its new global head of real estate, succeeding Chris McGibbon, who plans to retire in June.
🏘️ MULTIFAMILY
Midwest is best: Midwest suburbs are topping Redfin’s list of most-viewed ZIP codes in early 2025, but low inventory and fast-moving listings are making it tough for buyers to break in.
Foreign focus: Foreign investors are pouring back into NYC’s multifamily market, marking a sharp rebound in international capital after years of relative quiet.
Fire deal: A lawsuit blocking a major San Diego County housing project has been settled, allowing 2,750 homes to move forward with added fire safety measures and environmental protections.
Relief paused: NYC’s housing agency has halted new applications for Section 610, cutting off a key financial reprieve for landlords with voucher tenants amid federal funding uncertainty.
Queens boost: Tishman Speyer secured $160M in financing from Citigroup and Hudson Housing Capital to build 244 affordable units in Far Rockaway as part of the larger 2,050-unit Edgemere Commons development.
Fresh start: Altadena has listed a fully permitted 54-unit mixed-use development for $6.25M, one of the first multifamily projects approved since January’s destructive Eaton Fire.
🏭 Industrial
Waterfront revival: New York City has completed a $148M renovation at Brooklyn’s MADE Bush Terminal, transforming a historic industrial site into a modern hub for manufacturers, artisans, and designers as part of a broader waterfront revitalization.
Warehouse win: Longpoint Partners sold a fully leased Miami Gardens warehouse for $43.5M—netting a 50% gain over its 2021 purchase price—as investor appetite for South Florida industrial assets remains strong.
Tariff tension: Uncertainty around new US tariffs is causing industrial tenants to delay leasing decisions, with landlords reporting a growing “wait and see” approach across the sector.
🏬 RETAIL
Slim recovery: Forever 21’s bankruptcy plan offers major lenders just 2–3% recovery on $1.09B in claims, with some creditors getting nothing as the retailer shutters US stores in its second Chapter 11.
Retail magnet: Crosland Southeast’s massive Exchange at Indian Land development is gaining momentum, with Costco and Lowes Foods slated to open by year’s end and residential construction set to break ground in September.
🏢 OFFICE
Quick flip: Investor David Werner is in talks to offload the office portion of 300 East 42nd Street just months after going into contract, continuing his strategy of snapping up discounted properties and flipping fast.
New digs: Foot Locker has finalized its decision to relocate its global headquarters from New York to St. Petersburg, FL, leasing space in Carillon Business Park to fill one of the city’s largest office vacancies.
Strategic relocation: Apollo Global is negotiating a nearly 100K-SF lease at 590 Madison Avenue, aiming to consolidate staff closer to its main headquarters at 9 West 57th Street.
🏨 HOSPITALITY
Deal window: Despite recession fears and high interest rates, hotel investors see potential buying opportunities ahead as pricing resets and market volatility creates space for strategic acquisitions.
Tourism trouble: NYC hotels are feeling the pinch as rising geopolitical tensions and stricter US policies discourage international travelers and threaten post-pandemic recovery momentum.
A MESSAGE FROM JBREC & CRE DAILY
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📈 CHART OF THE DAY
Downtown Austin and San Antonio are leading apartment demand in Central Texas, outperforming suburban areas where lease-ups are slower and pricing pressure is mounting. Despite widespread assumptions that suburban living would dominate, urban cores are proving more resilient, drawing renters with walkable amenities and lifestyle appeal.
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