🏢 The new conundrum plaguing office in 2025

👋 Hello, Best Ever readers!

In this week’s newsletter, the office sector faces a new conundrum, Amazon backs off, and new industrial hot spots emerge.

🚨 Also … Joe Fairless is hosting LIVE Office Hours in the Best Ever Community today, Jan. 9, at 3 p.m. EST, where members can ask him just about anything. This live event and its replay are available exclusively to Best Ever Community members.

👉 Want to get access? Simply reply to this email with the word “Community” and we’ll send you a special link to join.

Onward!

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CRE HEADLINES

🏢 RTO Rush: Amazon is facing space constraints in the wake of its recent return-to-office mandate, causing the e-commerce giant to temporarily exempt thousands of employees from the mandate with some return dates pushed back as far as May.

🐌 Growth Slowdown: U.S. multifamily rents grew just 1% in 2024, with Q4 average asking rents at $1,729. Growth slowed due to seasonal factors and new supply outpacing demand, with 133.3K new units versus 113.2K net move-ins. Despite slowing growth, vacancy rates remained stable at 8%.

👮 Collusion Allegations: The DOJ expanded its antitrust case against RealPage to include six major landlords — Greystar Real Estate Partners, Blackstone’s LivCor asset management firm, Camden Property Trust, Cushman & Wakefield, Willow Bridge Property Co., and Cortland Management — alleging they colluded to fix rents for more than one million apartments. 

📈 Yields Up: The 10-year Treasury yield closed at 4.679% this week while the 30-year hit a 14-month high at 4.836%, with both up 40 basis points in the last month. Experts forecast that the 10-year yield could reach 5-5.23%, sparking concern in CRE circles.

🐶 New Top Dog: South Carolina moved up three spots in the 2024 migration rankings, unseating Texas — which held the top spot for three years — as the top destination for one-way moves. North Carolina, Florida, and Tennessee rounded out the top five.

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THE NEW CONUNDRUM PLAGUING OFFICE IN 2025

Despite record-high vacancy rates plaguing the U.S. office market, a surprising trend is emerging: Prime office spaces are becoming progressively more scarce in major business districts, according to The Wall Street Journal. The pickings are increasingly slim in premier locations like New York's Park Avenue, Miami's Brickell district, and Century City in Los Angeles.

This scarcity comes as major companies across technology, finance, and entertainment mandate stricter return-to-office policies. Amazon, for example, issued an RTO mandate in September (it’s already not going well), and JP Morgan announced this week that it’s bringing its staff back to the office five days a week.

To pry remote workers from their home offices and coffee shops, these tenants are looking for top-tier amenities, including outdoor spaces, upscale fitness centers, restaurants, and proximity to transportation hubs. This has created intense competition for a dwindling supply of premium office space.

As a result, the market appears to feature two competing trends:

• A Glut of Empty Offices: Decades of overbuilding made the U.S. office market vulnerable when the pandemic hit and remote work flourished, leading to the national office vacancy rate for primary markets ending 2024 at a record 20.4%. Meanwhile, new office construction hit a historic low in 2024, with only 14 million square feet breaking ground compared to the 2015-2019 quarterly average of 21 million square feet.

• A Shortage of Premium Space: Premium office space occupancy has surged 22% above pre-pandemic levels, while lower-tier space occupancy remains 5% below 2019 figures. As a result, top-tier properties are reducing tenant concessions for the first time since 2020, with Park Avenue vacancy slipping into single digits while rents have climbed 20% over the last two years.

This market bifurcation has prompted major developers to respond. Companies like Hines, BXP, and SL Green are planning new premium office developments. However, these projects won't deliver for 4–7 years, suggesting the supply crunch in the premium office sector could worsen before it improves.

WHAT IT ALL MEANS

The emergence of a two-tiered office market presents both challenges and opportunities for investors. While the overall market struggles with a record 20.4% vacancy rate and rising loan delinquencies, prime office properties are becoming valuable commodities, prompting investors to focus on either acquiring and upgrading well-located properties or targeting new development opportunities in core markets where tenant demand for premium space remains high.

_{🎟️ BEST EVER CONFERENCE}
60 DAYS TO GO

We are in the home stretch of planning Best Ever Conference IX, and wanted to remind you about some important upcoming deadlines and housekeeping items!

• The deadline to secure your room at the Hyatt Regency at our special event rate of $229 per night is January 30. These rooms sell out every year, and they are going fast! Click here to secure yours.

• 💸 Want a chance to compete for $600,000 in investment prize money? Submit your application to the Best Ever Pitch Slam today!

• As a Conference attendee, you get FREE access to the Best Ever Community, an all-new digital space exclusively for the best and brightest minds in CRE. Get started today.

🍾 To celebrate the new year, we're offering 25% off tickets for a limited time only! Click below, and use the code newyears25 at checkout to save. 

*Discount does not apply to already purchased tickets or the GA Accredited Limited Partner ticket.

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U.S. INDUSTRIAL HOT SPOTS FOR 2025

The industrial real estate sector enters 2025 with renewed stability and emerging opportunities across some surprising key growth markets. 

Strategic locations with strong logistics infrastructure and population growth are driving demand, while eco-friendly facilities are increasingly attractive to tenants. From established hubs to emerging secondary markets, distinct regional advantages are creating diverse investment opportunities in the industrial sector.

These are the top 10 markets for industrial investors in 2025, according to Crexi:

• Top Dog: Cleveland, OH, takes the top spot with an impressively low 2.6% vacancy rate in Q3 2024, down from 2.8% the previous quarter. Despite a slight slowdown in leasing activity, average asking rates reached $5.68 per square foot, while recent transactions like the $28.6 million acquisition of a 458,000-square-foot warehouse underscore the market's strength.

• The Second Wave: Spots 2–4 go to Jacksonville (6.1% vacancy rate with port expansions doubling capacity by mid-2025), Houston (6.2 million square feet of net absorption in Q3), Inland Empire (70% increase in new leasing activity for large properties), and Orlando (30% of new construction pre-leased). These markets share strong port and logistics infrastructure driving demand.

• The Best of the Rest: Rounding out the top 10 are Richmond, Las Vegas, Louisville, Philadelphia, and Denver — all featuring vacancy rates under 9%, highlighted by Richmond (3.4% vacancy) and Louisville (3.4% vacancy after 90 basis point improvement in Q3).

As evidenced by this list, secondary markets with strong logistics infrastructure and population growth are emerging as attractive alternatives to traditional industrial hubs, offering higher yields while maintaining solid fundamentals — a compelling combination for anyone looking to invest in industrial in 2025.

_{🏠 DEAL OF THE WEEK}
$7 MILLION ADDED IN VALUE, 36% IRR, AND 1.71X EQUITY MULTIPLE IN TWO YEARS

George Giannopoulos and the team at Kings Capital added over $7 million in value to this Manhattan multifamily property and delivered a 36% IRR and 1.71X equity multiple to investors in just two years.

Here's how they did it 👇

🏢 Property Details: This 20-unit multifamily property was purchased in December 2022 and is located in Manhattan, New York.

💸 Finances: The property was purchased for $4.65 million with a 10% hard non-refundable deposit. The team raised $3.3 million in capital and secured a $3.3 million bridge loan.

💼 Business Plan: Kings Capital entered into a contract to acquire the property in March 2022 with the closing set for nine months later in December 2022. This allowed them to take advantage of a 1031 exchange. As part of the agreement, the seller permitted Kings Capital to begin construction while under contract. This unique arrangement allowed them to get a head start on the renovation process, reducing downtime and accelerating the repositioning timeline.

The gut renovation project featured high-end upgrades designed to enhance tenant experience and maximize property value. Key improvements included the installation of washers and dryers in every unit, modern HVAC systems for improved climate control, a virtual doorman to enhance security and convenience, enlarged windows to optimize natural light, a redesigned lobby with package delivery accommodations, and a comprehensive reconfiguration of unit layouts to improve functionality and appeal.

🍾 Results: Renovations were completed six months faster than projected and under budget. The entire building was leased quickly, surpassing rental projections by 4%. The property sold for $11,750,000 in December 2024, or $1,175 per square foot. This resulted in a 36% IRR and an equity multiple of 1.71X for investors.

If you have a deal you'd like to feature here, respond directly to this email with “deal breakdown.”

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