February 2025

North America

·Blackstone is back in the market to buy New York office real estate starting with 1345 Avenue of the Americas. Blackstone is planning to secure an $800 million loan to finance its acquisition of a stake in the 50-story office building at 1345 Avenue of the Americas in Manhattan. The alternative asset giant is purchasing the stake from institutional investors linked to JPMorgan Global Alternatives, who currently own 49%, while Fisher Brothers holds the remaining 51%. Initially, Blackstone explored refinancing the existing $600 million loan on the property but later opted to buy an equity stake. Despite office market struggles, the building has rebounded post-pandemic, with occupancy climbing back to 96% by the end of 2023, according to Morningstar. The departure of Alliance Bernstein in late 2024 was offset by a long-term lease with law firm Paul, Weiss, Rifkind, Wharton & Garrison, covering 38% of the 1.9 million-square-foot property. Blackstone’s renewed interest in office assets aligns with the Federal Reserve’s move to lower interest rates, which has improved financing conditions. (Source: Bloomberg, Reuters, CoStar, 2025)

1345 Avenue of the Americas, New York

·Logistics tenants seek taller industrial buildings in Southern California for advanced racking systems, storage and fulfilment. Industrial buildings in Southern California are rising taller to meet the evolving needs of logistics tenants. Developers are prioritizing clear heights of 36 feet or more, allowing for advanced racking systems, automated storage, and more efficient order fulfilment. With e-commerce driving demand for rapid deliveries, tenants prefer high-ceiling warehouses that maximize storage capacity while reducing real estate costs. In 2024, nearly 75% of newly built warehouses over 100,000 square feet featured clear heights of 36 feet or more, with 15% exceeding 40 feet. This marks a dramatic increase from the 1950s, when industrial buildings had average clear heights of just over 20 feet. Taller warehouses also tend to be larger overall, with 40-foot-high buildings averaging 800,000 square feet. As online shopping continues to expand, developers adapting to these height and space trends will be best positioned to serve modern supply chains. (Source: CoStar, 2025)

Southern California Industrial Building Clear Heigh Trend

·Demand for the US office market turns positive for the first time since 2021 as signs of recovery but risks remain. The U.S. office market saw positive demand at the end of 2024, signalling a potential turnaround. A historically low supply pipeline is expected to last for years, reducing new office space availability. CoStar forecasts the national office vacancy rate to peak at 14.5% in late 2026, lower and sooner than previously expected, while rent growth is projected to remain slightly positive. Economic strength and job growth have supported demand, while corporate return-to-office policies from companies like Amazon and JPMorgan Chase have stabilized occupancy. However, the recovery is uneven, with New York driving most gains while cities like Boston and Los Angeles continue to see declines. Potential downsizing by the federal government and some private employers could still hinder recovery. Despite challenges, limited new construction and concentrated vacancy in older buildings may sustain rent growth in premium office properties. (Source: CoStar, 2025)

US office market net absorption and vacancy rates

·Brookfield defaults on two shopping malls in Texas and Arizona whilst with CMBS refinancing demand for New York Salesforce Tower (Three Bryant Park) shows resilience and selective demand. Brookfield Property Partners defaulted on $302 million in loans tied to Tucson Mall in Arizona and Town East Mall in Texas. The Town East Mall loan, previously extended, reentered special servicing due to maturity default, while Tucson Mall’s value has plummeted 73% since 2012. In contrast, Simon Property Group secured a $1.2 billion refinancing for Houston's Galleria mall, the largest in Texas, through a consortium led by Bank of America. The 10-year, fixed-rate loan carries an estimated 6% interest and replaces an existing $1.2 billion debt maturing in March, which had a lower 3.58% interest rate. The mall’s valuation has surged to $3.46 billion, up from $2.52 billion in 2015. Meanwhile, Ivanhoé Cambridge secured a new loan from Wells Fargo, Bank of America, and Bank of Montreal to refinance $1.1 billion for New York’s Salesforce Tower (Three Bryant Park). The five-year loan will bear floating interest at the Secured Overnight Financing Rate (SOFR) plus 2.25%, with interest-only payments due monthly. These developments highlight a mix of financial resilience and distress across the commercial real estate sector. (Source: Morningstar DBRS, CoStar, 2025)

Ivanhoe Cambridge’s Three Bryant Park (42 story office tower in midtown Manhattan)

Bank of America is leading the $1.2bn refinance of The Galleria, largest mall in Texas

·National hotel industry faces limited pricing amid bifurcation trend between luxury hotels and economy hotel classes. The U.S. hotel sector saw revenue per available room (RevPAR) grow by just 1.8% in 2024, driven primarily by a 1.7% increase in average daily rates (ADR), both falling below inflation. Midscale and economy hotels struggled, with ADR declines and occupancy drops, while upper-tier hotels experienced modest rate increases. Economy hotels faced a 2.4% decline in demand, partially due to a 1.1% reduction in supply, with unbranded properties hit hardest. The "bifurcation" trend persisted, as high-end hotels benefited from affluent travelers, stock market gains, and increased corporate event spending. The 2025 outlook anticipates continued divergence, with RevPAR expected to grow 1.8%, driven by luxury and upper-upscale segments (~3% growth), while midscale hotels may contract by 0.7%. Economy hotels face slight growth at 0.3%, as inflation pressures budget-conscious travelers. (Source: Transportation Safety Administration, CoStar, 2025)

US hotel occupancy and ADR growth indicators

Europe

·French SCPIs (real estate investment funds) are increasing expanding into Germany and UK amid attractive yields. French SCPIs (real estate investment funds) are increasingly turning their focus to Germany's property market, drawn by high-yield opportunities in second- and third-tier cities. A notable deal in 2023 was the purchase of Amundi’s Cube 10 office in Hamburg by Ofi Invest Real Estate, which set a new benchmark for core office assets with a 4.5% yield. New SCPIs launched in France in 2024 are capitalizing on opportunities for higher returns, particularly in logistics, retail, and hotel sectors, where they are targeting smaller assets with transaction volumes of €10m-€30m. With competition in France stagnant, French investors are eyeing Germany’s polycentric market, which offers diversification beyond the major cities. Additionally, favorable tax incentives for French investors, such as the 1959 tax agreement with Germany, make these investments even more appealing. As French SCPIs become more active, the spotlight on their acquisitions grows, signaling a shift in cross-border investment strategies. (Source: Green Street, JLL, Ardian, 2025)

French SCPI fund, Iroko Zon, has acquired the Kugelhaus retail property in Munich, Germany, adding to its growing portfolio of retail assets purchased across Germany, the UK, Ireland, and the Netherlands.

·UK hotel class performance diverges in 2024 with luxury hotels thriving as economy struggles. In 2024, the UK hotel market saw a stark divergence in performance across different hotel classes, driven by growing wealth and cost-of-living pressures. Luxury hotels outperformed, with a 5% increase in revenue per available room (RevPAR), driven by strong occupancy and rates. While regional hotels performed better than those in London, the capital still saw a 4% RevPAR increase despite increased supply. This trend reflects a global pattern, with luxury hotel rates increasing by 30% over the past five years, fuelled by the rise of ultra-high-net-worth individuals. In contrast, economy and midscale hotels saw a 1% decline in RevPAR, with economy hotels facing significant pressure on both occupancy and rates, particularly in London. The rebound of corporate business and group bookings supported the upscale and upper upscale hotels, resulting in a 3% RevPAR uplift. Looking ahead to 2025, while overall conditions may improve slightly, challenges for lower-end hotels are likely to continue, while the luxury market remains buoyed by international demand and higher-income travellers. (Source: CoStar, 2025)

Luxury RevPAR shows strong momentum as economy sours.

·GIC backs Blackstone on £2bn Arch Company, UK retail portfolio, acquisition. Sovereign wealth fund GIC is set to acquire a significant minority stake in Blackstone’s core-plus vehicle, the Blackstone European Property Income Fund (BEPIF), as part of a deal to purchase the remaining 50% of Arch Company from the Pears family’s TT Group. The £2bn transaction, expected to close in the coming month, will see GIC take around 25% ownership in Arch Company, a platform focused on railway arches across the UK. This move will increase BEPIF’s asset value to over €3bn, bolstering the fund’s ability to pursue new acquisitions, particularly in sectors like residential, student housing, and selective offices, as market conditions improve. Blackstone is optimistic that GIC’s involvement will attract additional investment into BEPIF and provide capital for an acquisition spree. The Arch Company portfolio, which includes 5,200 assets, is primarily concentrated in London and has a mix of light industrial, retail, and leisure uses. This collaboration between GIC and Blackstone underscores the growing interest in European real estate, with increased investor activity across different risk sectors. (Source: Arch Company, Green Street, 2025)

C. 70% of the Arch Company portfolio by value is located in London, predominantly railway arch units converted to retail and leisure offerings.

·German lender, PBB, reduces lending business volume amid challenging market and increase in NPLs (non-performing loans) from US offices and German development distress. Deutsche Pfandbriefbank (PBB) reduced its new business volume to €5.1bn in 2024, missing its €5.5bn target and down from €7.2bn in 2023. The bank prioritized profitability and risk-return profiles, leading to a rise in segment margins from 205 to 240 basis points. Despite lower risk provisions, which dropped by 20% to -€170m, non-performing loans (NPLs) increased to €1.9bn due to US office and German development distress. While 15 NPLs were resolved, 13 new ones emerged, including 10 US office loans worth €637m and three German development loans totaling €219m. Overall, NPL valuations declined by an average of 20% over the year. PBB targets €6.5bn–€7.5bn in new business and another profit increase in 2025. It also announced a €0.15 per share dividend and a €15m share buyback. CEO Kay Wolf remains cautious about economic uncertainties but sees positive trends in German developments and stabilizing real estate markets. (Source: PBB, Green Street, 2025)

·UK commercial property market showing signs of recovery across all asset classes. The latest RICS UK Commercial Property Monitor reveals that over half of respondents believe the market has bottomed out or is in the early upswing phase. CoStar data shows that capital values rose through 2024, and office and industrial yields have begun to harden after reaching their highest levels since the financial crisis, while retail yields have been tightening for over a year. Despite UK office and industrial yields being at one of their lowest spreads against 10-year bond yields this century, falling real estate yields indicate growing investor confidence. Industrial properties lead recovery prospects, with rising investment enquiries and capital value expectations, whereas office and retail sectors report declining demand and negative growth outlooks. The pricing gap between buyers and sellers is narrowing, with discounts to asking prices shrinking from 15% in early 2023 to 7% in late 2024, suggesting improving deal momentum. However, office vacancies are unlikely to peak until mid-2026, which could limit rental growth and compress capital values in the short term. CoStar’s forecast anticipates further yield compression across sectors in 2025, while industrial rental growth remains strong due to near-peak vacancies. (Source: RICS, CoStar, 2025)

UK commercial real estate yields have started compressing

RICS survey on UK commercial real estate market cycle