Amid a growing array of alternative investment opportunities in global asset markets, commercial real estate (CRE) has recently exhibited relatively subdued performance in terms of both returns and recovery pace. Traditionally positioned as a hybrid investment class between equities and fixed income, CRE has experienced a notable compression in yields over the past few years, driven largely by aggressive monetary tightening and a sharp rise in interest rates.

Historically, real estate has been viewed as an effective hedge against inflation, with its performance closely tied to capital market variables such as liquidity and interest rates. In environments marked by high inflation and low interest rates, abundant liquidity has typically supported asset price appreciation and led to cap rate compression. Alongside macroeconomic drivers, investment performance has also been shaped by micro-level factors, including the ability to secure high-quality assets or identify undervalued opportunities for acquisition or development.

However, early signs now point to a potential structural shift in this conventional framework. In previous cycles, high capital costs meant that real estate valuations were largely driven by capital market forces. Yet, post-pandemic trends in cap rate movements by sector suggest a decoupling of sorts—where asset-level dynamics and sector-specific fundamentals are beginning to lead capital cycle shifts, resulting in a new pattern of yield repricing. This signals a broader transformation in how CRE performance is being calibrated across changing macro and microeconomic environments.

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Tech-Driven Shifts in Sectoral Growth Models

The global real estate market has entered a phase of heightened uncertainty, marked by volatility across economic, political, and technological dimensions. Market fluctuations are intensifying, policy direction remains opaque, and disruptive innovations are accelerating the transformation of industrial structures. Major global investors increasingly recognize that asset valuations may be approaching a cyclical floor within this context. As a result, a selective and forward-looking approach is becoming increasingly critical, replacing the previously dominant stance of passive observation.

Investor focus is particularly on sectors with structural growth potential, such as data centers, power and energy infrastructure, and utilities—assets perceived to be better positioned for transformation. As a result, future investment strategies will need to prioritize selectivity based on adaptability to structural change and long-term growth potential. Industrial-like assets underpinned by technology and infrastructure are gaining traction for their scalability, while consumer-facing assets are evaluated on operational flexibility and their ability to pivot through model innovation.

By contrast, traditional assets reliant on stable rental income may prove structurally vulnerable in this environment, reinforcing the need for a more conservative approach. In times of heightened uncertainty, strategic allocation to sectors with strong fundamentals and greater adaptability will be key to maintaining performance resilience.

U.S. Office: Recovering Demand, Limited Supply

The U.S. office market shows early signs of bottoming as return-to-office (RTO) momentum accelerates and new supply growth slows. While average vacancy rates across significant cities remain elevated at approximately 23%, sustained office utilization by major corporates such as Walmart, Amazon, and Microsoft—via five-day or hybrid work models—is gradually restoring baseline demand.

From a financing perspective, elevated delinquency rates in the office segment’s CMBS exposure and widening debt spreads continue to weigh on investor sentiment. As a result, pricing corrections remain ongoing. According to RCA (Real Capital Analytics), average office valuations as of Q4 2024 were down 24% from the Q2 2022 peak—heightening interest in the sector from a valuation standpoint.

On the supply side, construction cost inflation has significantly curtailed new starts, with 2024 supply growth projected at just 0.5%—well below historical averages. This contraction alleviates oversupply concerns and sets the stage for a more balanced market dynamic when combined with increasing demand for office-to-residential or hotel conversions.

These developments lay the groundwork for mid-to-long-term repricing opportunities and renewed investor interest. The convergence of stabilizing demand and constrained supply may catalyze reassessing asset value and rebuilding market confidence in the office sector.

New York Prime Office: Renovation and Investment Reevaluation Accelerating

The New York prime office market is showing early signs of recovery, driven by a decline in vacancy rates and renewed investor interest in Midtown assets. This growing optimism reflects an active reevaluation of strategies centered on high-quality office properties.

Investor preference for Class A and above assets has become increasingly pronounced, widening the performance gap between prime offices and the broader market. According to Green Street, as of 2024, the vacancy rate for prime office space is 815 basis points (8.15) lower than the market average—more than double the historical spread of 350 bps recorded between 2012 and 2020. This trend highlights the apparent divergence in investor appetite favoring premium-grade assets.

Revenue per available floor (RevPAF) data further supports this segmentation. While Class A properties show signs of rent stabilization and recovery, B and B+ assets continue to lag, indicating a market shift toward core, premium holdings.

Geographically, New York’s prime office vacancy rate has begun to decline in 2024, outperforming both national and other gateway city averages. Midtown Manhattan is particularly poised for rent growth, while Central Business Districts in cities such as Chicago (+1.8%) and New York (+0.8%) also exhibit early recovery momentum. In response, investors are increasingly initiating renovation plans and re-entering the market, focusing on core prime assets.

U.S. Logistics: A Shift Toward Industrial Supply Chain Integration

The U.S. logistics sector is navigating near-term headwinds, including a slowdown in e-commerce growth and a surge in supply. These factors have led to rising vacancy rates and downward pressure on rents. However, over the medium to long term, increasing demand for manufacturing-related logistics is expected to support a more stable sector outlook.

According to forecasts, rental growth across key U.S. markets may remain subdued or negative in cities like Phoenix and Philadelphia through 2025–2026. Nonetheless, a broader uptrend is anticipated from 2027 onward.

According to Green Street, despite the recent moderation in e-commerce penetration, the overall market continues to expand, with an average CAGR of approximately 11%. Simultaneously, construction investment in manufacturing facilities has surged by 207% compared to 2019, signaling a robust uptick in demand for domestic industrial logistics.

On the supply side, the post-2022 boom in logistics center development has raised concerns about oversupply. However, the start of the new project is beginning to moderate. In particular, the share of newly developed logistics assets serving manufacturing-related functions reached 19% in 2024, highlighting a structural pivot toward industrial supply chain infrastructure within the U.S. logistics market.

U.S. Multifamily: Gateway Markets Lead Recovery, Sunbelt Under Adjustment

The U.S. multifamily sector continues to see steady growth in rental demand, driven by an increase in the number of households and the rising burden of homeownership costs. Housing costs to household income rose from 15.7% in 2019 to 25.5% in 2024, as elevated home prices and rising interest rates have further deteriorated affordability for potential homebuyers.

According to FRED data, U.S. households increased from approximately 128.6 million in 2020 to 132.2 million in 2024, contributing to a corresponding rise in rental housing demand.

Regionally, gateway cities such as New York and Chicago are seeing declining vacancy rates and upward rent pressure in 2024, supported by a resurgence in return-to-office (RTO) activity and limited new supply. In contrast, key Sunbelt markets—including Austin, Houston, and Phoenix—face near-term oversupply, leading to elevated vacancy levels. Green Street data shows that between 2021 and 2024, vacancy rates in these cities rose significantly, with 2024 rents expected to decline by approximately -6.0% in Austin and -2.5% in Phoenix.

Nevertheless, it is essential to note that Sunbelt markets continue to benefit from favorable living conditions and strong domestic migration trends. Despite short-term adjustments, these markets retain solid long-term fundamentals, warranting continued attention from a strategic investment perspective.

U.S. Niche Sectors: Expanding on Structural Demand

Niche real estate sectors in the U.S. are experiencing rapid growth, driven by demographic shifts and structural economic changes. Investor interest in specialized asset classes such as senior and student housing, healthcare facilities, self-storage, and data centers has notably increased.

According to Preqin, the share of real estate transactions involving niche sectors has expanded from 2% in 2019 to 7% in 2024. When including broadly defined niche segments—such as data centers and multifamily assets as classified in some markets—the combined share has grown from 62% to 69% over the same period. In contrast, the office sector’s share declined from 35% to 15%, highlighting a clear divergence in investor preferences.

This shift underscores the broader reallocation of capital from traditional office and retail to residential and logistics-oriented assets. The trend also aligns with rising structural demand for healthcare and lifestyle infrastructure, fueled by the aging population and the growing number of single-person households.

Between 2025 and 2030, the population aged 65–84 is expected to grow at an average annual rate of 2.2%, while the 85+ demographic is projected to expand by 4.0% annually. During the same period, the number of single-person households is also forecast to increase steadily (Census Bureau, November 2023 projection). These shifts will likely drive growing demand for niche assets such as senior housing, healthcare facilities, and compact residential units.

From an industrial perspective, the U.S. economy is also witnessing a shift in composition. The GDP share of knowledge-based sectors—including information technology, professional services, education, and healthcare—is expanding, while traditional sectors like manufacturing, finance, and construction are gradually declining. As a result, real estate, which is linked to knowledge industries, such as data centers and premium infrastructure assets, is emerging as an increasingly attractive investment theme.

U.S. Data Centers: Emerging as High-Growth Infrastructure Assets

Data centers are rapidly emerging as a high-growth infrastructure asset class characterized by strong return potential and rapid capital deployment. In recent years, investment activity has increasingly centered around opportunistic strategies, with a growing number of investors—including real estate, private equity, and infrastructure funds—actively targeting data centers and related infrastructure. Investment structures are also becoming more diversified through strategic alliances with cloud service providers (CSPs).

According to BCG, power demand from data centers in the U.S. is expected to rise from 25GW in 2020 to 81GW by 2028, representing an annual growth rate of 13–18%. While supply is expanding, it continues to lag behind demand, which is expected to keep vacancy rates at structurally low levels.

Data centers are capital-intensive assets, with average development costs estimated at approximately $1,500 per square foot—roughly twice the price of developing office space. Despite this, 80% of data center investment strategies in 2024 are focused on opportunistic plays, reflecting a clear preference for ground-up development. This is mainly due to the increasingly complex and demanding specifications around MEP (Mechanical, Electrical & Plumbing) systems and power capacity driven by ongoing technological advancements.

From a capital markets perspective, global institutional investors actively enter the space through large-scale funds and strategic partnerships. Major players like BlackRock, GIP, MGX, NVIDIA, and Microsoft are expanding collaborative frameworks for data center deployment and energy infrastructure development. These initiatives underpin mega-deals ranging from $30 to $100 billion, often involving vertically integrated platforms combining energy infrastructure with semiconductor and hyperscale computing technologies.

By Soyeong Park, Contents Writer

Data Analysis & Review by Strategic Research Division, IGIS Asset Management

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