CRE This Week - What's impacting the United States market?
January 20, 2025 - US commercial real estate news, macroeconomic indicators and market analysis.
Week of January 20, 2025
Welcome to the latest edition of CRE This Week, curated by Altus Group’s US research team.
Our team has handpicked pertinent and noteworthy market indicators, articles, original research, and significant industry dates that are critical to the US commercial real estate sector. We understand that your time is valuable, so we're excited to deliver research that helps you stay informed and saves you some time each Monday morning.
For more key economic indicators that matter to commercial real estate, see Top Indicators by Major Asset Type.
Economic print
Macro economic factors impacting CRE
NFIB Small Business Optimism Index
The National Federation of Independent Business released the Small Business Optimism Index for December on January 14. The index hit its highest level since October 2018, up 3.4 points month-over-month to 105.1.
Optimism continues to build following the election, as President-elect Trump has pledged deregulation and lower taxes. Small business owners report reduced uncertainty about the economy's direction, a more positive outlook for business conditions, and heightened expectations for sales. Notably, 27% of business owners plan to make capital outlays within the next six months – the highest level since January 2022. This could benefit owners of office, retail and industrial properties, as small businesses are significant occupiers of these spaces.
However, inflation remains a critical concern, with 20% of business owners identifying it as their top issue. President Trump’s proposed tariffs, which are inherently inflationary, could exacerbate these concerns, reinforcing the likelihood of a "higher for longer" interest rate environment.
The Bureau of Labor Statistics released the Consumer Price Index (CPI) for December on January 15. Prices rose 0.4% month-over-month and 2.9% year-over-year.
Core CPI, a key inflation measure excluding volatile food and energy prices, rose 0.2% month-over-month and 3.2% year-over-year in December, slightly below November’s 3.3% figure. While the next Personal Consumption Expenditures (PCE) Price Index – the Fed’s preferred inflation gauge – won’t be released until January 31, market participants do not anticipate rate cuts at the first FOMC meeting in late January.
The US Census Bureau released its advance monthly report on retail and food service sales activity for December on January 16. According to the report, sales rose 0.4% month-over-month and 3.9% year-over-year to a seasonally adjusted level of $729 billion. Total sales for all 12 months of 2024 rose 3.0% from 2023.
Retail sales for December showed a 0.7% increase in the control group (excluding autos and building materials), but there are two reasons for caution about this growth. First, retail sales data is not adjusted for inflation, meaning higher prices may be driving the increase rather than stronger consumer demand. Second, some consumers likely pulled forward purchases ahead of potential tariff implementation, evidenced by electronics store spending rising 5.8% year-over-year and furniture store sales up 8.4% on a seasonally adjusted basis.
One bright spot continues to be non-store retailers, including e-commerce, which grew 6% annually. This robust performance is a tailwind for industrial and warehouse demand as supply chains evolve to meet online shopping needs.
Conversely, some segments of traditional retail continue to struggle. Department store sales declined 1.8% year-over-year in December and have declined in all but two months since February 2023. Notably, department store giant Macy’s announced the closure of 66 locations on January 9.
Building Permits and Housing Starts
The U.S. Census Bureau released its December New Residential Construction report on January 17, revealing mixed trends in the housing market. Building permits were issued at a seasonally adjusted annual rate (SAAR) of 1,483,000, representing a 0.7% decline from the previous month and a 3.1% drop compared to the same period last year. Housing starts showed stronger activity, reaching a SAAR of 1,499,000, up 15.8% month-over-month but down 4.4% year-over-year. Meanwhile, housing completions fell to a SAAR of 1,544,000, a 4.8% decline from November and a slight 0.8% decrease from December 2023.
Multifamily housing starts surged in December, with a seasonally adjusted month-over-month increase of 58.9% - the largest jump since October 2016. However, the unadjusted data paints a more tempered picture, showing a modest 7.9% increase month-over-month and a 2.7% decline year-over-year. This highlights the inherent volatility in multifamily construction activity, raising questions about the sustainability of the surge.
The single-family sector continues to face challenges, with permits declining on an annual basis every month since May 2024. These declines have accelerated in recent months, signaling potential constraints on future single-family supply. This contraction could bolster multifamily demand as housing options tighten and affordability concerns persist.
News
News to know
Burlington sees the future of retail. It looks much smaller | Wall Street Journal, January 13, 2025
Burlington is transforming its retail strategy by downsizing stores to nearly 70-80% smaller than its traditional big-box format, focusing on an 18,000-25,000 square-foot model to enhance profitability and align with changing consumer preferences. The retailer emphasizes a treasure-hunt experience with a broader merchandise mix, including beauty and home goods, while reducing inventory by a third since 2019. CEO Michael O’Sullivan, formerly of Ross Stores, has spearheaded this shift, ending e-commerce operations and focusing on well-located shopping centers to open 400 net new stores by 2029, aiming for a total of 2,000 locations. Burlington leverages real estate from bankrupt chains like Bed Bath & Beyond and prioritizes smaller, more profitable stores, outperforming its historical sales metrics. This strategy positions Burlington to compete aggressively with off-price leaders like Ross and TJX.
Opportunity Zone industry gearing up for expansion under Trump | BisNow, January 13, 2025
The Opportunity Zone (OZ) program, introduced in 2017 to incentivize investments in economically distressed areas, has attracted tens of billions in funding but faces a slowdown as it approaches its 2026 sunset. Following Donald Trump’s re-election, optimism within the real estate community has surged, with expectations of program renewal or reform under a supportive administration. Experts highlight the program's long-term benefits, such as tax-free gains for investments held over 10 years, and its role in capitalizing projects like mixed-use developments. However, critics argue that the OZ program often subsidizes investments that would occur regardless and lacks focus on genuinely underserved areas. Advocates are calling for refinements, including better targeting of distressed communities, greater rural emphasis, and improved transparency. With bipartisan legislation proposing extensions and potential reforms on the table, the future of the program remains uncertain but promising, contingent on Congressional action.
CBRE Group to acquire Industrious | Commercial Property Executive, January 14, 2025
CBRE Group has agreed to acquire Industrious National Management Co. LLC, a flexible workplace solutions provider, for approximately $400 million, valuing the company at an estimated $800 million. This acquisition, set to close later this month, will consolidate Industrious into CBRE's newly formed Building Operations & Experience (BOE) segment, which integrates workplace experience, property management, and building operations. Industrious CEO Jamie Hodari will lead the BOE segment and also serve as CBRE’s chief commercial officer. Since 2021, Industrious has achieved over 50% annual revenue growth and now operates 200+ units across 65+ cities, leveraging an asset-light model through partnerships with property owners.
The 2025 Investment Intentions Survey by INREV, ANREV, and PREA reveals that global real estate allocations are nearing target levels, with Europe achieving balance, North America leading in allocation, and Asia Pacific narrowing its under-allocation gap. Spain has entered Europe’s top three investment destinations, driven by strong economic growth and residential demand, while value-added strategies remain dominant, and interest in core strategies rises amid economic uncertainties. Residential real estate leads sector preferences, followed by industrial/logistics, with student accommodation climbing in rank and office demand declining. Sustainability is a key focus, with over half of investors setting net-zero targets, led by European adoption of ESG practices. Operating platforms emerge as the preferred access route, reflecting the growth of the residential sector, while debt funds and multi-manager solutions maintain positive momentum.
Wall Street thinks US homes are overpriced | Wall Street Journal, January 16, 2025
Wall Street sees US home prices as overvalued, with stocks of major single-family landlords like Invitation Homes and American Homes 4 Rent trading at significant discounts to their net asset values (35% and 20%, respectively), signaling skepticism about current market valuations. Institutional investors, constrained by rising borrowing costs and low cap rates, have dramatically reduced home purchases, hitting a seven-year low. While owner-occupiers prioritize affordability over returns, investors require higher cap rates to justify acquisitions, leading them to explore alternatives like building homes or renovating distressed properties. Despite sky-high prices frustrating investors, landlords are capitalizing by pruning portfolios at near-record valuations. Analysts suggest home prices may need to drop 10%-15% to rekindle institutional buying, highlighting potential overpayment by today’s homebuyers.
Research Spotlight
Catch the latest insights from the Altus team
Results are live | CRE industry conditions and sentiment survey
New year, new expectations: See what other market participants think of the current and future CRE market.
Read our report to see what the industry is saying about:
Pricing and performance by property type
Priority actions and issues
Debt and equity financing, terms and rates
Expectations for cash flows, cap rates, transactions
Get the results now: United States survey results | Canada survey results
Podcast | 2024 shifts and 2025 expectations: Insights from our latest industry survey
CRE Exchange hosts, Omar Eltorai and Cole Perry, share the Q4 2024 results from the CRE Industry Conditions and Sentiment Survey.
They discuss major shifts in market perceptions of property pricing, top-performing property types, transaction intentions for 2025, expected capital availability, and the various risks and opportunities predicted for the coming year. Additionally, they spotlight their biggest takeaways and surprises from this quarter's results.
Important dates
Upcoming data releases and events
Data releases (Times in EST)
Friday, January 24
10:00AM: Existing Home Sales, Data Release
Upcoming industry events
January 22: IMN Winter Forum on Real Estate Opportunity
January 27-30: MFA Global Alternatives Conference
January 28-30: NHMC National Meeting
January 28-30: ALIS Annual Investment Summit
About our research team
Omar Eltorai
Research Director
Altus Group
Omar Eltorai is a Research Director at Altus Group. With more than a decade of experience in the industry in investment management and financing roles,
Omar's focus is on macro, capital and market trends affecting the US CRE market. Beyond regularly authoring articles and reports, his commentary and analysis has been featured in various media publications, including: Wall Street Journal, Globe Street, and Yahoo! Finance.
Cole Perry
Associate Director of Research
Altus Group
Cole Perry is a Associate Director of Research with Altus Group's Research team. In this role, Cole delivers key insights into macroeconomics, capital markets, and the broader commercial real estate sector.
Cole boasts a rich background in Commercial Real Estate analytics with previous roles at CompStak and Brixmor Property Group. He holds dual M.S. degrees from Columbia University in Urban Planning and Real Estate Development.
Disclaimer: The opinions expressed in this newsletter are solely those of the authors and are not endorsed by Altus Group Limited, its affiliates and its related entities (collectively “Altus Group”). This publication has been prepared for general guidance on matters of interest only and does not constitute professional advice or services of Altus Group. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy, completeness or reliability of the information contained in this publication, or the suitability of the information for a particular purpose. To the extent permitted by law, Altus Group does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it. The distribution of this publication to you does not create, extend or revive a client relationship between Altus Group and you or any other person or entity. This publication, or any part thereof, may not be reproduced or distributed in any form for any purpose without the express written consent of Altus Group.
Resources
Latest insights
Jan 16, 2025
EP46 - 2024 shifts and 2025 expectations - Insights from our latest CRE industry survey
