By: Head of Data Strategy at LightBox, Manus Clancy
After a rollicking November, the financial markets closed out the year on a downbeat note on several levels.
The immediate post-election reaction was a positive one. Stocks and other risk assets (including crypto) surged. For some, simply the end of the months-long election slog provided a much-needed jolt of optimism. For others, the hope of deregulation and (fingers crossed) deficit reduction provided a glimmer of hope.
December was a more sober one for the financial markets, however. The major stock indexes finished in the red last month as rising Treasury rates made for a bumpy holiday season for equities. Volatility also picked up with stocks selling off sharply several times.
In the fixed income markets, the results were equally desultory. The yield on the 10-year Treasury moved up 40 basis points to end the year at 4.58%. That was nearly 100 basis points above the yields in mid-September, shortly after the Fed announced its 50-basis point rate cut. This upward drift in long-dated Treasury yields also dampened the outlook for CRE in early 2025.
To be sure, there was still plenty of CRE optimism for 2025 at the end of the year. Many seasoned pros that we spoke to during the holiday season noted that Q1 2025 was already full of deals just waiting to be announced, with some revealing that Q1 could bring a surge in sales. Though listings initiated on LightBox’s RCM platform are generally light in December, the number of new listings the last two weeks of 2024 were double that of 2023.
Yet, the level of enthusiasm in some quarters was tempered compared to September when the yield on the 10-year was just over 3.60%.
A Sector-Specific Look at Year End Deals
Apartment Sales March Along Even During Holiday Slowdown
The apartment sales market continued to soldier on in December, defying a holiday slowdown.
There were more than 20 announced sales of $75 million or more in December alone. The sales came from a diverse set of markets with the top dollar prices coming from deals in San Diego, Denver, Redmond (WA), Santa Maria (CA), Seattle, Wheaton (IL), Marietta (GA), and Charlotte.
Hotel Sector Shows Signs of Life
As far as sales volume was concerned, the hotel market was the biggest disappointment of 2024. While office values were obliterated in 2024, that didn’t keep the office sales market from chugging along. Buyers lined up in 2024 to buy offices properties at 75% off or more.
Not so in the hotel market, where property sales lagged throughout the year. So, it was exciting to see a few high dollar sales in the hotel market in December.
In Boston, the Courtyard Boston Downtown at 275 Tremont Street traded for $123 million, amounting to almost $400K per key.
In New York, the Radisson Hotel New York Wall Street sold for $94.5 million to Slate Property Group—averaging about $325K per room. That represented a 1% increase in sales price from 2017.
On the other side, there were also several high-profile foreclosure events in the hotel sector, a development that keeps the market from getting too giddy in 2025.
Industrial – Investors Still Willing to Pay Up
CRE investors have been waiting for months (if not years) for momentum in the industrial segment to peter out. They will have to wait a little longer, it would seem.
December saw eight industrial sales of $100 million or more topped by a $575 million sale of assets in Charlotte and Charleston (SC).
Even Office Gets Some Love
Just as it’s easy for football fans to pile on the Jets and Giants this time of year, it’s easy to find examples of how awful the office market was in 2024.
But just as the Jets and Giants sometimes manage to defy expectations and win a game, the office market also gets a winner. In December, that came in Austin, where the Sail Tower sold to Cousins Properties for $522 million. That represented about $650 per square foot. Game on!
Some Scenarios for 2025:
- Spending Cuts and Deficit Reduction
One thing hanging over the market for months has been the size of the U.S. debt and the rise of annual deficits to $2 trillion. That has helped keep long-dated bond yields higher.
The new administration has been talking a big game about cutting spending and reducing the deficit. This was echoed by Treasury Secretary nominee Scott Bessent.
Real, short-term steps to reel in spending would be beneficial to the bond markets. That, in turn, would be useful for property valuations and by extension, property owners. The most impacted would be those with maturing loans or “cuspy” properties—properties where the net operating income (NOI) barely covers debt service or where there is little to no positive equity.
Of course, if ‘too successful,’ this scenario could spur renewed optimism for higher-risk investments, lifting animal spirits and resulting in upward yield pressure on bonds.
The other side of the coin is that the new administration may fail to reel in spending and the deficit will remain a big concern. Under this scenario, the “higher for longer” path for bond yields would be the likely outcome—to the disappointment of the CRE market.
- Tariffs: How Much Will They Impact Inflation
Of course, another major emphasis for the new administration will be tariffs.
Unlike spending cuts—where success would be helpful to the bond and CRE markets—“success” in the tariff space could be harmful to the CRE markets.
“Tariff-warners” have been predicting that punitive measures against China and others will be inflationary. Accordingly, if the expected tariffs are at the high end of predictions, that could push inflation expectations upward. That, in turn, could make the Fed more restrictive in 2025. The worst-case scenario, of course, is one where the Fed is forced to raise rates again. That would be a disaster for the bond markets and CRE.
As with spending cuts, there is another side of the coin.
The bull case is that the Trump tariff talk has been a negotiating tactic; that tariffs are more modest than the tough talk during the election season; and that impact on inflation and bond yields is minimal.
Happy New Year to all and may 2025 be full of peace, prosperity, and good health.
Subscribe To Insights
Be the first to get the latest news, updates and insights from LightBox.
