By: Head of Data Strategy at LightBox, Manus Clancy
I recently had the opportunity to guest lecture at a Clemson real estate class, where I shared insights on the importance of balancing book smarts with street smarts in commercial real estate (CRE). While financial models, cap rates, and valuation methods are essential tools, long-term success in the industry often comes down to seeing beyond the spreadsheet.
Current market shifts—like the retail apocalypse, rising vacancies in office, and the growing need for industrial space—underscore the importance of anticipating risks, demographic changes, and emerging opportunities. In today’s rapidly evolving market, having a broad perspective is just as critical as mastering the fundamentals.
In CRE, a deep technical understanding will take you far but combining that knowledge with a broad perspective on market trends, policy shifts, and consumer behavior can take you even further.
Lessons from the Past: Retail and Office Shocks
Malls in Decline
One of the most dramatic shifts in CRE came with the rise of e-commerce. Before 2010, regional malls thrived, fueled by steady foot traffic, big-name retailers, and low vacancies. But as as online shopping became more popular, major retailers struggled and demand for traditional mall space weakened, forcing many struggling properties to adapt or face steep losses.
A striking example is the Woodbridge Center Mall in New Jersey. Built in 1971 with five major anchor stores, it was once a prime retail destination. By 2014, the property carried a $220 million loan and was valued at $366 million. However, as major tenants closed and vacancies rose, its value plummeted. By 2024, it sold for just $70 million—an 80% decline—leaving the lender to face $155 million in losses.
This underscores a critical lesson: in 2014, some lenders were still underwriting malls based on outdated assumptions about their long-term stability. Meanwhile, investors who recognized shifting consumer trends and the challenges facing aging retail assets were better positioned to navigate the changing landscape. Today, while retail overall remains strong, the repurposing of underperforming malls into mixed-use developments, logistics hubs, and residential spaces highlights the importance of adapting to the evolving needs of consumers and shifting sands in the demand for real estate.
Retailer Bankruptcies on the Rise
Outside of the mall segment, the retail sector faced similar struggles. From 2015 to 2024, a growing number of major retailers declared bankruptcy as foot traffic dwindled and e-commerce eroded traditional sales.
The retail sector has undergone significant transformations over the past decade, with bankruptcy trends reflecting broader shifts in consumer behavior, economic conditions, and market disruptions. While the so-called “retail apocalypse” of the late 2010s saw major chains like Toys “R” Us, Sears, and Payless ShoeSource file for bankruptcy, the COVID-19 pandemic in 2020 accelerated store closures and led to a record 52 retail bankruptcies that year. However, as the economy rebounded, bankruptcies declined, with just 25 filings in 2023. This relative stability was short-lived, as 2024 saw a sharp increase, with 50 retailers filing for bankruptcy according to Coresight research, driven by persistent inflation, high interest rates, and shifting consumer spending habits.
Despite these challenges, the retail sector is far from collapsing. While some traditional mall-based retailers have struggled, discounters, fast-fashion brands, and grocery chains have continued to expand. Additionally, the rise of e-commerce has pushed retailers to adopt omnichannel strategies, blending online and in-store experiences to stay competitive. The repurposing of underperforming malls into mixed-use developments or logistics hubs highlights the sector’s ability to adapt. Moving forward, retail bankruptcies may continue to rise among highly leveraged companies, but strong consumer demand and evolving retail models suggest a more complex picture than the dire predictions of a full-scale industry decline.
The Office Market Collapse
A similar pattern emerged in the office sector post-2020. The COVID-19 pandemic accelerated remote work trends, drastically reducing demand for office space. Companies downsized, lease renewals fell, and office buildings lost value at unprecedented rates.
The Gas Company Tower in Los Angeles provides a cautionary tale. In 2021, lenders issued a $465 million loan on the 52-story office tower, valued at $632 million. But as tenants downsized, the property’s financials unraveled. By 2023, it was revalued at $270 million, and by 2024, it sold for just $200 million—wiping out all equity and leaving lenders with nearly $300 million in losses.
While many office buildings continue to see declining valuations, select markets—such as Miami, Nashville, and Austin—have bucked the trend with stronger leasing activity. Miami’s office market has benefited from an influx of financial and professional services firms relocating to the area, leading to a 16.6% increase of leasing activity in Q4 2024 compared with the same time last year as well as positive net absorption. Similarly, Nashville has experienced strong leasing volumes, with over 2.7 million square feet leased in 2024, and a stable vacancy rate hovering between 16% and 18%. Austin’s office market has also demonstrated resilience, with total leasing activity in 2024 exceeding 4.4 million square feet, marking an 18.7% increase from the previous year. Notably, Lower Manhattan recorded its highest office leasing volume since December 2019, with tenants securing 1.25 million square feet in February 2025.
Emerging Trends: What’s Next in CRE?
Across CRE, investors who adapt to evolving consumer behaviors, economic pressures, and technological advancements are best positioned for long-term success. Here are a few of the current emerging trends in CRE.
1. The Boom in Industrial Real Estate
While malls crumbled, the e-commerce surge created a massive demand for industrial space. Warehouses, logistics centers, and distribution facilities became the new retail hubs, as companies like Amazon expanded their footprint. Asian third-party logistics companies have notably increased their leasing activities in major U.S. markets like New Jersey and Los Angeles, doubling their presence since 2023. This trend is driven by changes in global trade and manufacturing dynamics, positioning industrial real estate as a critical component in the modern supply chain.
2. AI and Data Centers: A New Frontier
Tech firms are investing hundreds of millions of dollars into land and infrastructure for data centers to support AI growth. Companies like OpenAI are investing heavily in facilities such as the Stargate project in Abilene, Texas. While the construction phase generates numerous jobs, the operational phase requires fewer personnel, highlighting a shift in employment patterns within the tech infrastructure sector. Moreover, this expansion could have unintended consequences, such as driving up energy costs for surrounding areas. If AI-driven energy demand skyrockets, could it make cities less affordable for residents and businesses? CRE investors must factor in these secondary effects.
3. Government Policy and Office Space
Government decisions significantly impact the CRE market, particularly in the office sector. With a new administration focusing on reducing federal office space, Washington D.C.’s commercial real estate market could be at risk. The round of government lease terminations could impact office valuations, residential demand, and even local businesses like restaurants and coffee shops. This exodus, coupled with other departures, may cause ripple effects in cities with large federal leases resulting in properties—many of which may be Class B and C properties—selling below their purchase prices and posing challenges for landlords to backfill space vacated by the federal government.
4. Climate and Insurance Challenges
As climate risks grow, insurance costs are surging, affecting the affordability and valuation of properties in high-risk areas. In hurricane-prone coastal regions and wildfire-prone states like California, insurers have begun scaling back coverage or exiting markets altogether, leaving property owners scrambling for alternatives. Some municipalities have state-backed insurance pools like the California FAIR Plan, but these often come with higher premiums and coverage limitations. If traditional insurers continue to pull back, CRE investors must anticipate how governments or alternative financial structures—such as catastrophe bonds, risk-sharing partnerships, or self-insurance models—will evolve to fill the gap. Understanding these shifts will be critical for underwriting risk, securing financing, and maintaining long-term asset value.
Final Takeaway: Seeing Beyond the Spreadsheet
The most successful CRE professionals don’t just analyze spreadsheets; they anticipate broader economic, technological, and policy changes. Whether it’s the decline of malls, the remote work revolution, or the rise of AI-driven real estate demand, those who pull back the lens and adapt will thrive.
If you want to be a leader in CRE, it’s not just about numbers—it’s about vision. The ability to spot trends before they fully materialize is what separates the winners from those left holding the bag.
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