March 2025

North America

·More real estate players believe US cap rates have peaked, according to CBRE. CBRE’s H2 2024 Cap Rate Survey (CRS) reveals shifting market sentiment, with fewer respondents expecting cap rate increases compared to previous surveys. The majority now anticipate no change across all property types, signaling a potential stabilization in valuations. While office properties still face uncertainty, prime offices in gateway cities are seeing a more optimistic outlook, contrasting with weaker suburban markets. Treasury yield volatility influenced cap rate movements, with industrial and multifamily sectors benefiting from improved NOI prospects. Survey data from over 200 CBRE professionals indicate cap rates have mostly stabilized, except for office properties, where financial distress continues to apply pressure. The spread between high and low cap rate estimates has widened, especially in Class B and C office properties, reflecting heightened uncertainty. Overall, the survey suggests that repricing is largely complete, but sector-specific trends will shape the market going forward. (Source: CBRE, 2025)

Percentage of Respondents who expect cap rates to increase in the next six months

US Real Estate Cap Rate v. Bond Yields

·US CMBS Special Servicing spiked in February, driven by office and retail assets driving, with office loan special servicing hitting a new 25 year high. The Trepp CMBS Special Servicing Rate surged 45 basis points in February 2025, reaching 10.32%, following a brief decline in January. This increase was driven by a $1.8 billion rise in special servicing loans and an $8.8 billion drop in outstanding loan balances. Office and retail properties were the primary contributors, with office rates jumping 108 basis points to 16.19%, a new 25+ year high, and retail rates rising 59 basis points to 11.26%. The mixed-use rate also increased 33 basis points to 13.04%, its highest level since 2013. Office loans dominated new transfers, comprising $1.8 billion (78%) of the $2.3 billion total for February. The volume of newly transferred office loans doubled compared to January, highlighting continued distress in the sector. Other property types saw minimal movement, with changes under 15 basis points. (Source: Trepp, PropMemo, 2025)

CMBS Special Servicing rates by Asset Class

·DC office market rebounds as workers return despite political uncertainty around US government agency, General Services Administration, reducing leases. Washington, D.C.’s office market is seeing signs of recovery, as return-to-office mandates drive increased leasing activity and foot traffic. Metro ridership has surged, restaurants are expanding hours, and premium office spaces are in high demand, despite ongoing federal downsizing. Large employers, including law firms, financial firms, and government contractors, are investing in high-end office spaces to attract talent, pushing top-tier rents to $75 per square foot. While vacancy rates remain elevated, landlords like BXP are betting on a long-term turnaround, with plans to break ground on a 320,000-square-foot redevelopment near the White House. The lack of new construction is tightening supply, increasing competition for premium spaces. However, political uncertainty lingers, with the GSA reducing leases and offloading federal buildings, potentially reshaping the market. Still, DC’s rebound mirrors broader investor optimism in the office sector, with major deals and leasing momentum helping to stabilize confidence. (Source: CoStar, GSA, BXP, Carr Properties, 2025)

Office landlords in Washington, D.C. are optimistic that return-to-office mandates will spur recovery.

·Amazon expands One Medical service showing shift from large medical campuses to hybrid clinics in strategic retail locations. Amazon is accelerating the expansion of its primary care chain, One Medical, despite the challenges that led Walmart to exit the space and Walgreens to consider divestment. One Medical, which Amazon acquired for $3.9 billion in 2023, now operates over 200 locations in more than 20 U.S. cities and is opening new centers in New Jersey, Westchester County, and Cleveland. Unlike struggling competitors, Amazon is partnering with major hospital networks like Hackensack Meridian Health and Cleveland Clinic to bolster its presence. The service, which offers both virtual and in-person care, is also available as a $9/month or $99/year benefit for Amazon Prime members on a subscription basis. Walmart cited unsustainable business models and rising costs as reasons for shutting down its health centers, while Walgreens is exploring selling its VillageMD chain. One Medical has faced scrutiny over telehealth safety concerns, but Amazon remains committed to growing its footprint in the primary care market. (Source: Amazon, Walmart, CoStar, 2025)

Amazon One Medical promotes its locations as welcoming and calming than most traditional sterile medical offices.

·Largest office markets are showing signs of recovery with New York and Miami leading the rebound. The largest office markets in the U.S. are seeing signs of recovery, driven by improving leasing activity, major corporate investments, and a renewed push for in-office work. Cities like New York and Miami are leading the rebound, while others such as San Francisco and Austin face challenges from oversupply and shifting demand. New York's recovery is fueled by its financial and legal sectors, with major firms expanding and a shrinking supply of high-end office space. Miami has emerged as a corporate hub, attracting financial giants like Citadel and JPMorgan Chase, keeping demand strong. Washington, D.C., is benefiting from a surge in legal and professional services leases, despite uncertainty over federal office use. San Francisco is seeing a resurgence, mainly driven by AI companies, though its vacancy rate remains high. Austin's rapid growth has led to oversupply issues, but its strong economy and tech presence suggest a long-term rebound. While the national vacancy rate remains elevated, prime office locations in top cities are filling up, signaling stabilization in the market. (Source: CoStar, 2025)

City	Current Vacancy Rate	Peak Vacancy Rate	Sublet Availability	Leasing Momentum	Biggest Drivers
New York	13.50%	14% (Q1 2024)	22.4M sq. ft. (15.3% of total availability)	27M sq. ft. leased in 2024 (+16% YoY)	High concentration of financial and legal services firms; limited new construction pipeline
Miami	8.60%	9.7% (Q1 2021)	1.1M sq. ft. (8.1% of total availability)	Nearly 5M sq. ft. leased in 2024	Strong corporate migration from other states, particularly financial & tech firms
Washington, D.C.	16.80%	17% (Q4 2024)	8.8M sq. ft. (8.5% of total availability)	Leasing at highest level since 2020, but 25% below pre-pandemic levels	Return-to-office mandates in legal and professional services sectors
San Francisco	23.50%	24% (expected 2025)	9.5M sq. ft. (18.5% of total availability)	Leasing at highest levels since 2022, AI-driven demand	Surge in AI industry expansions; discounted office valuations attracting investors
Austin	16.60%	17.5% (expected 2026)	4.5M sq. ft. (16.1% of total availability)	More space leased than offloaded, but supply outpacing demand	Rapid population growth, strong tech sector, but oversupply concerns

Europe

·Oxford Properties, one of the most successful London office investors post- GFC (Global Financial Crisis) plans comeback after a decade. Canadian investment giant Oxford Properties is preparing to re-enter the London office market after a decade-long break, focusing on high-quality, core-plus, and value-add assets. Speaking at the MIPIM conference, Oxford Properties confirmed the firm is actively reviewing opportunities as investor sentiment toward London offices improves. Experts anticipate a rebound in transactions in 2025, following a 15-year low last year, as global investors regain confidence in the sector. Oxford previously played a key role in major London developments, including the Leadenhall Building (City) and The Post Building (Holborn), but recently shifted focus toward logistics and residential investments. The firm still owns key assets like the Blue Fin Building (Southwark) and MidCity Place (Holborn), where it is planning a major refurbishment. With strong demand from private equity and institutional investors, Oxford’s return signals growing optimism for London’s commercial real estate market. (Source: Oxford Properties, JLL, CoStar, 2025)

Oxford Properties sold The Post Building in 2019 for c. £610m

·BNP Paribas enforces loan and takes control of City of London office building previously owned by Henderson Park. BNP Paribas has taken control of Ibex House, a 190,000 sq ft office building in the City of London, after enforcing its loan against previous owner Henderson Park. Henderson Park acquired the asset in 2019 for £120m with an £80m loan from BNP but struggled to advance its redevelopment plans due to Covid-19, planning delays, and market shifts. With the project no longer viable, BNP enforced its security and assumed control of the property. BNP Paribas Real Estate and Cushman & Wakefield have been instructed to oversee a sale, likely targeting offers around the bank’s debt level. The capital value per square foot of the loan equates to approximately £420 psf. The sale is expected to attract opportunistic investors considering office redevelopment, residential conversion, or hotel use. Henderson Park confirmed the transfer but declined further comment. This mirrors a similar move by Nuveen Real estate, who also took control of One Portsoken Street last year after its owner defaulted on the debt. (Source: Green Street, Henderson Park, 2025)

BNP Paribas takes control of Ibex House, City of London

·Investors showing more interest in Grade A UK regional offices, where investment yields are very attractive. Investor interest is shifting beyond prime London offices, with regional cities like Birmingham, Manchester, and Bristol seeing record rents and attractive investment yields. Firms such as Martley Capital, Melford Capital, and French SCPI funds are seizing opportunities in regional office markets, reminiscent of the industrial sector rebound in 2009. Prime office rents in cities like Leeds and Bristol are hitting all-time highs, exceeding £50 per sq ft, while investors are targeting high-yield properties before pricing recovers. The supply shortage of modern office space, combined with growing occupier demand, is driving optimism in the sector. Despite lingering concerns over refurbishment costs and financing, early movers see a generational buying opportunity at yields exceeding 10%. The recovery is expected to start in prime London offices before spreading to regional markets, mirroring trends seen in other real estate sectors. While the road ahead may be bumpy, investors who bet on secondary office space now could see strong returns as the market normalizes. (Source: Green Street, Martley Capital, Savills, 2025)

Annual Average % Returns Across Different UK Sectors (2025-2029) 

UK Office Values in Key Markets

·Core institutional capital returns to European real estate with €700M Paris trophy asset sale. Union Investment is preparing to sell City Quartier Trocadéro, a prime €700M+ Paris office asset, marking the largest European office sale in this cycle. The super-prime mixed-use property in the 16th arrondissement has been owned by Union for 20 years and is expected to attract global investors, including Asian pension funds and Middle Eastern mandates. Office rents in central Paris have surpassed €1,200/sq m, making Trocadéro an attractive opportunity for rental growth. This sale signals the return of institutional core capital to European real estate, with investors re-entering prime office markets. Recent deals, including Schoeller Group’s €450M Berlin office acquisition and a £75M core Edinburgh office sale, reflect growing confidence. Development financing is also surging, with Cheyne Capital backing a £1.2B London redevelopment and Brookfield securing €230M for an Irish HQ project. Paris and London are leading this new real estate cycle, as investors position for future market gains. (Source: Green Street, Union Investment, Brookfield, Cheyne Capital, 2025)

Union Investment has owned CityQuartier Trocadero for 20 years.

·Norway’s sovereign wealth fund, Norges Bank Investment Management, debuts European student housing strategy as part of a wider European real estate acquisition push. Norway’s $1.7T sovereign wealth fund, Norges Bank Investment Management (NBIM), is entering European student housing by recapitalising Kley, a €1.3B platform owned by AXA IM Alts. Kley, one of Europe’s highest-quality student housing platforms, has grown from 2,900 to 8,000 beds across 32 assets, with locations in Paris, Marseille, Toulouse, Montpellier, and Madrid. The investment comes amid strong demand for student accommodation, driven by rising enrolments, limited supply, and resilient rental growth. Valuation yield for the portfolio is to be around 4.2%. This move aligns with NBIM’s broader real estate push, following its €450M Paris office deal, €166M European logistics acquisition, and £1.2B West End London office and mixed use portfolio stake. AXA will remain investment manager, continuing its strategy of expanding operational real estate platforms, as seen with Kadans in life sciences and the €3.5B Data4 data centre sale. The deal underscores institutional confidence in student housing, with other major platforms like Brookfield’s Livensa (9,000-unit collection of Spanish student housing) and EQT’s UK assets also attracting interest. (Source: NBIM, Green Street, AXA IM, Brookfield, 2025)

Kley Student Residence in Montpellier, France