The Latest Data, News, and Analysis Impacting the Commercial Real Estate Market
Every week, LightBox carefully selects the week’s most impactful economic news, market metrics, in-house data and analysis, and transactions shaping the CRE industry.
In this week’s edition:
- Surprisingly strong employment data complicates next interest rate decision by the Fed
- December’s LightBox CRE Activity Index declines MoM, capping a year of volatility
- Massive wildfires spread across Los Angeles metro
- LightBox Market Advisory Council predicts 17% uptick in CRE transactions in ‘25
- Office markets in downtown metros set year-end leasing records
- Employment Data Surprises on the Upside, January Rate Cut Unlikely
In a surprisingly strong jobs report, the U.S. economy added 256,000 jobs in December and the unemployment rate edged down to 4.1%. In total, the U.S. economy added 2.2 million jobs in 2024, more than double the number expected by economists heading into the year last January.
The LightBox Take: The strength of the December jobs report dampened expectations for near-term interest rate cuts reinforcing the Fed’s stance in the minutes of the December meeting that policymakers were comfortable holding interest rates steady in the near-term. Markets are now pricing in just over 25 basis points interest rate cuts for all of 2025 (and expectations for no rate cuts until October), a marked departure from previous expectations for 75 bps this year just after December’s Fed meeting.
- LightBox CRE Activity Index Declines MoM, Capping a Year of Volatility
After November’s 80.5 reading, the LightBox CRE Activity Index fell 23.7 points to 56.8 at the end of December. This aggregate measure of activity in commercial property listings, environmental due diligence, and appraisals collectively tracks shifts in the velocity of key functions that support CRE transactions and therefore provides a useful leading indicator of deal activity. Year over year, the December results highlight the improvements of the CRE transactions market over the past 12 months, reflected by the 8.6-point increase over the previous December.
The LightBox Take: While the December decline was expected due to a typical seasonal moderation at year-end, 2024’s was steeper than the average 19.3-point drop between November and December of the prior three years. Contributing to the decline was the significant 40-point spike in 10-year Treasury yields in December as investors became increasingly concerned over the federal deficit and the potential for new tariffs to trigger inflation. Now that 2025 is underway, investors are actively looking for opportunities to place capital in U.S. CRE and financial institutions are responding to more demand from borrowers to originate property loans across all asset types and geographies, even amid concerns about the market’s uncertainty and the future pace of rate cuts.
- Massive wildfires spread across Los Angeles leaving a trail of destruction in their wake
Early last week, major wildfires spread across Los Angeles, powered by high winds and dry conditions. By week’s end, the largest of the blazes, the Palisades Fire covered 37 square miles. To date, the wildfires have destroyed more than 12,300 structures after sweeping through 40,000 acres in the greater Los Angeles area.
The LightBox Take: The ongoing wildfires are expected to cost insurers billions of dollars due to extensive damage to residential and commercial properties, marking some of the most significant losses in California’s history. The fires, which are not yet contained, primarily affect homeowners’ insurance at State Farm, Allstate, and Travelers. Commercial properties insured by Travelers, AIG, and other companies are also expected to face substantial impacts, albeit to a lesser extent. Reports have emerged that several insurers, including State Farm, may have dropped many clients’ fire insurance coverage just two months prior to the wildfires. This move could raise questions about the timing and rationale behind such decisions, especially in light of the devastating financial aftermath reminiscent of the 2018 Camp Fire, which resulted in insured losses of $10 billion.
- LightBox Q4 Market Advisory Council members expect 17% growth in CRE deals this year
In the year-end survey of Capital Markets Advisory Council members, CRE professionals from across the U.S. expect CRE transactions to increase by an average of 17% this year. Survey responses indicate that transaction growth is expected to range from 10% to 35% in 2025. As more transactions close, the bid-ask gap that challenged deals over the past few years will narrow further and entice more buyers and sellers into the market. Each new round of dealmaking will help establish a bottom in the market as prices become more predictable.
The LightBox Take: While there are differences by degrees and myriad forecast scenarios, most CRE professionals agree that 2025 will be better than 2024 for transaction activity, despite some persistent market challenges. Fueling the optimism is the expectation that as the value correction for CRE assets continues, investors will see more long-term opportunities than they did in 2024. Council members also report seeing more property portfolios changing hands, stronger interest from institutional investors, and a re-engagement of clients who were in wait-and-see mode for much of 2024.
- Downtown office leasing spikes at year-end 2024 in major metros
Many top office markets across the country saw a spike in office leasing at the end of 2024 in a promising sign of office stabilization. In Seattle, for example, Apple just signed the largest new lease for office space since 2019, and the latest 0.1% uptick in office vacancy marked the smallest increase since the pandemic began. Manhattan experienced a record-breaking year in office leasing during 2024, with activity approaching levels seen before the pandemic. According to a JLL report, tenants signed over 200 leases at $100 or more per square foot. The overall leasing volume for the year nearly tripled compared to 2023, highlighted by a significant uptick in premium spaces—28 leases were priced at least $200 per square foot.
The LightBox Take: The continued return-to-office push is playing a part in driving demand for downtown office space. Companies now have a clearer understanding of their office space requirements, reinforced by more certainty about the number of staff needing in-office accommodations compared to the immediate post-COVID years. Companies are also showing strong demand for Class A office space, and in a growing number of cases, are demolishing outdated office space to build new trophy office buildings. In NYC alone, 12 million square feet of new office space are in conversions and major projects are underway in metros like Miami and D.C. with limited Class A, modern office available to meet demand.
Important dates and industry events this week
- Q4 2024 Earnings Reports from the ‘big six’ major banks:
- JPMorgan Chase, Wells Fargo, Citigroup: January 15
- Bank of America, Morgan Stanley, Goldman Sachs: January 16
- The latest inflation data in the release of December’s CPI and PPI, US retail sales, and housing starts
- Producer Price Index (PPI): January 14
- Consumer Price Index (CPI): January 15
- U.S. Retail Sales from NRF: January 16
- Housing Starts: January 17
- CREFC’s winter conference in Miami: January 12-15
Did You Know of the Week
Did You Know that the 8.6 year-over-year uptick in the LightBox CRE Activity Index was driven by double-digit increases in the volume of monthly property listings and environmental due diligence as the market shows more willingness by sellers to list properties for sale and more active demand for the Phase I environmental site assessments that support CRE dealmaking than when the market was largely in limbo one year ago?
For commentary on these CRE developments and more, tune in to the LightBox CRE Weekly Digest podcast.
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