December 2024

North America

·US Small Bay industrial to remain competitive regardless of the economic performance, according to CoStar. Small bay industrial spaces under 50,000 square feet are expected to remain scarce in 2025, with vacancy rates at a low 3.4%, comparable to New York City's extreme housing shortages. Despite strong demand, limited new construction of just 23 million square feet (0.3% of the U.S. total inventory) and significant demolitions—over 115 million square feet in the last decade—have deepened the shortage. Over the past ten years, the total stock of small bay properties has grown by less than 3%, while industries dependent on these spaces, like construction and auto repair, saw a 20% rise in employment. Higher interest rates and slower housing construction contributed to a 0.3% decline in occupied small bay industrial space in 2024, but the lack of new development has kept the sector resilient. Fitness-related tenants such as CrossFit gyms and pickleball facilities have also added pressure to the already tight market. Cities like Los Angeles and New York are particularly affected, where high land costs and redevelopment for residential projects limit small bay availability. (Source: CoStar, Bureau of Labor Statistics, 2024)

Widening US industrial vacancy gap betweeen Big Box and Small Bay

Industry employment growth outpaces Small Bay industrial stock growth

·AT&T ends hybrid work, requires full return to office for employees in 2025. AT&T is ending its hybrid work model and mandating all office-based employees return to the office five days a week starting in January 2025. This move signals a push to revert to a traditional, in-office work structure. Previously, the telecommunications giant had adopted a policy in 2023 requiring employees to be onsite at least three days a week across nine corporate hubs in the U.S. The company’s decision to intensify its office presence follows similar moves by other major corporations like Amazon, IBM, and Salesforce, which have also scaled back flexible work arrangements. AT&T’s recent office expansion, including two new buildings totalling over 205,000 square feet at its Lenox Park Atlanta hub, reflects preparations for a fuller return to in-office work. AT&T now occupies around 33 million square feet of office space nationwide, and as part of its new approach, the company aims to enhance its office environments with updated facilities and benefits programs for employees. The move is expected to further strengthen national office demand, as companies, struggling with record high vacancy rates and reduced space requirements during the pandemic, reconsider their office footprint. (Source: AT&T, Amazon, CoStar, 2024)

AT&T increases corporate footprint in Atlanta's Lenox Park office complex

·SL Green extends $1.25 billion loan on One Madison Tower as leasing falls short of expectations. SL Green Realty has extended a $1.25 billion mortgage on its One Madison office tower in Manhattan, amid slower-than-expected leasing. The new loan, led by Wells Fargo and a group of 14 global banks, extends the maturity to November 2027, with the interest rate maintained at 3.10% over the Secured Overnight Financing Rate (SOFR). This is a reduction from the original rate of 7.1%, set before the extension. The new agreement provides flexibility for loan modification based on leasing performance. Currently, the building is 65% leased, lower than the 75% leasing target projected for the end of 2024. Despite this, notable tenants like Franklin Templeton and IBM have signed leases, and more are expected in 2025. The extension is part of SL Green’s broader strategy to manage its debt maturities and maintain stability amid the shifting market, especially as the company's other Manhattan properties face similar challenges. (Source: SL Green Realty, CoStar, 2024)

·BlackRock acquires HPS Investment Partners for $12 billion to expand private credit portfolio. BlackRock has announced its acquisition of HPS Investment Partners for approximately $12 billion in an all-stock deal, marking the asset manager’s third major acquisition in 2024. The purchase strengthens BlackRock's position in the rapidly growing private credit market, which has surged due to tighter bank regulations. HPS, founded in 2007 and spun off from JPMorgan in 2016, has seen its assets grow to $148 billion, from $34 billion. The deal will expand BlackRock’s private credit assets, now totalling $220 billion, and is expected to increase its fee-paying private markets assets by 40%, and management fees by about 35%. BlackRock will pay $9.4 billion in about 9.2 million shares at closing, with an additional $2.9 million shares to be paid in five years under certain conditions. This move aligns with BlackRock’s broader strategy to integrate public and private markets, following recent acquisitions of Global Infrastructure Partners and Preqin. The deal aims to significantly enhance its presence in private credit, an asset class projected to reach $2.6 trillion by 2029, making it a crucial driver of growth for BlackRock in the coming years. (Source: BlackRock, HPS, Bloomberg, Reuters, Preqin, 2024)

Private Credit AUM to grow to $2.6 trillion by 2029, according to Preqin

·Ohio stands out as top data center investment destination with Amazon Web Services’ additional $10 billion investment. Amazon Web Services (AWS) has significantly increased its investment in Ohio, committing an additional $10 billion, bringing the total to $23.8 billion by 2030. This marks a 72% increase from AWS’s previous $13.8 billion plan. Ohio has become a key destination for data center developments due to its fast-growing sector and attractive advantages including ample developable land, skilled workforce, and strong energy infrastructure. The rise of artificial intelligence (AI) has accelerated demand for powerful data centers, driving major tech companies like Google, Meta, Microsoft, and AWS to expand in the state. AWS plans to develop up to eight new data center sites across Ohio, expanding beyond its current operations in the Columbus market. The company’s data centers will house the infrastructure for cloud computing, AI, and machine learning. The state’s Data Center Tax Abatement Program has also incentivized investments by offering sales tax exemptions on construction materials and technology infrastructure when a company invests over $100 million and creates jobs. AWS’s $23.8 billion investment would be the second-largest in Ohio’s history by a single private company, underscoring the state’s growing importance in the data center sector. (Source: CoStar, AWS, 2024)

Amazon Web Services’ data center facilities in New Albany, Ohio

Europe

·Brookfield commits £900 million to support Canary Wharf debt refinancing. Brookfield has committed £900 million in equity to assist Canary Wharf Group (CWG) in refinancing its debts, providing a significant financial boost. CWG is jointly owned by Brookfield and Qater Investment Authority (QIA). This equity injection will help CWG secure up to £610 million in fresh debt backed by its £888 million shopping center complex, currently free of debt, to address maturing bonds. CWG is working to gain consent from noteholders to leverage eligible assets for this refinancing effort. Moody’s has reacted positively to the move, describing it as significantly reducing refinancing risks and affirming CWG’s BaA3 corporate family rating while maintaining a negative outlook. Despite the equity injection, CWG remains reliant on asset sales in an improving market to lower leverage below its 50% loan-to-value target. Alongside these financial maneuvers, CWG is enhancing its district's appeal by diversifying occupiers across sectors, such as life sciences, and creating greener spaces. (Source: Brookfield, CoStar, Canary Wharf Group, Moody’s, 2024)

Canary Wharf, London

·St. James’s Place to wind down £1.84 Billion Property Funds amid industry-wide challenges following M&G’s closure. St. James’s Place (SJP), the UK’s largest wealth manager, has announced the closure of its £1.84 billion property funds, mirroring broader industry struggles exemplified by M&G’s similar decision in 2023. SJP attributed the move to close all three funds to challenging property markets post-COVID and impending regulatory reforms addressing liquidity mismatches in open-ended property funds. Key assets, including Altrincham Retail Park and various industrial and office properties across the UK, will be sold over the next two years, with periodic returns to investors. This decision impacts over 197,000 client accounts and follows SJP’s fund suspension in late 2023 due to heightened redemption requests. M&G’s closure of its £2 billion property portfolio in 2023, citing declining investor interest, signaled a turning point for such funds. Both closures underline the need for new regulations, with the Bank of England and FCA advocating for up to 180-day delays on redemption requests to align liquidity with asset sales. (Source: ST James’s Place, CoStar, M&G, Invesco, 2024)

Altrincham Retail Park, one of the key assets in the SJP property Funds

·UK to lead global real estate recovery in 2025, says CBRE and M&G. The UK is forecasted to drive global real estate recovery in 2025, with CBRE predicting a 15% increase in investment and M&G highlighting strong demand across housing, prime assets, and sustainable developments. CBRE notes that inflation control and interest rate cuts will boost investor confidence, while M&G emphasises the UK's leadership in addressing housing supply constraints and opportunities in transitioning real estate to green standards. In Europe, southern markets are poised for outperformance, while the Nordics and Netherlands will benefit from easing inflation and lower financing costs, creating investor-friendly environments. In the US, the focus is shifting towards amenity-rich, sustainable offices and resilient urban housing, as the market bifurcates in favour of high-quality assets. Asia-Pacific is set for robust growth, with Tokyo’s multifamily housing and dominant urban centers driving increased investment due to migration trends and refinancing pressures in high-interest scenarios. Globally, M&G expects rising momentum in "alternative" sectors, such as living accommodations and self-storage, which are now viewed as essential assets for long-term portfolios. This recovery phase, marked by increasing optimism, sets the stage for significant buying, selling, and lending opportunities worldwide. (Source: CoStar, M&G, CBRE, 2024)

·GSA and Nuveen to acquire €567 million French student housing portfolio. Gecina has sold its YouFirst Campus student housing portfolio for €567 million to a joint venture between Global Student Accommodation (GSA) and Nuveen Real Estate. The portfolio includes 18 operational assets with 3,300 beds and four under-development properties totaling 400 beds, with an additional €30 million in capex required before delivery in 2025. Rivals Brookfield Asset Management and Greystar were also in the running for the highly contested transaction. Proceeds will help Gecina strengthen its €3.5 billion portfolio, finance its value-adding residential and commercial pipeline, and seize strategic acquisition opportunities. Representing 2.5% of Gecina's portfolio and 11.9% of its residential assets, these student residences are centrally located near key French university hubs. Until the deal closes in the first half of 2025 and through the transition period, Gecina will manage the portfolio with operating partner Yugo. (Source: Business Immo, Gecina, 2024)

55 rue Brillat Savarin, part of the YouFirst Campus portfolio, acquired by GSA and Nuveen

·British Land secure £280m Vodafone HQ office deal ahead of Tishman Speyer and JP Morgan AM, following a December rush of large ticket size Central London office deals. British Land (REIT) has agreed to acquire Vodafone’s global headquarters at 1 Kingdom Street, Paddington, from Hong Kong’s CC Land for just over £280m, reflecting a yield above 7%. CC Land had marketed the property at c. £300m, approximately 6.5% yield, since September. This acquisition strengthens BL’s holdings within the 11-acre Paddington Central campus, a mixed-use development where BL has been a key investor since 2013. Despite competition from bidders like Tishman Speyer and JP Morgan Asset Management, BL's existing assets in the area position it as a natural buyer with unique asset management opportunities to unlock additional value. CC Land previously acquired the property in 2017 for £292m at a 4.86% yield. This follows multiple £100m+ Central London office acquisitions that had closed in December including JP Morgan Asset Management’s purchase of 100 New Oxford Street at c. £140m (5.5% yield) and 11-12 St James’s Square by Larry Ellison, Oracle co-founder, for £162m. This implies a vote of confidence from both institutional and family office investors for larger size Central London offices. (Source: JP Morgan, CoStar, Green Street, 2024)

One Kingdom Street, Paddington