Key Insights

US business activity growth picked up in March, with a strong service sector upturn offsetting a decline in manufacturing output. However, business outlook deteriorated further, dropping to its second-lowest level since October 2022, as companies cited rising costs and uncertainty surrounding new administration policies.

Trump’s policies are spurring US manufacturing investments, with companies like Hyundai ($21B, including a $5.8B Louisiana steel plant) and Johnson & Johnson ($55B manufacturing expansion) onshoring to sidestep tariff risks. This shift is expected to boost demand for industrial real estate, reshaping economic landscapes as firms prioritize domestic production facilities.

KB Home’s Q1 2025 earnings miss and lowered guidance highlight a weakening housing market, driven by affordability issues and consumer uncertainty amid high mortgage rates and rising costs. This mirrors 2024’s stagnant Millennial and Gen Z homeownership rates, as limited inventory and financial hurdles continue to block young buyers, signaling a tough performance outlook.

This Week in Real Estate: Key Events & Data

Quick Markets

30Y Mortgage: 6.77% (+5 bps)
10Y Treasury Yield: 4.33% (+5 bps)
FTSE NAREIT Index: 780.52 (1.39%)
30-day SOFR Average: 4.33%

Market Pulse

US business activity saw growth in March driven by the service sector, but manufacturing struggles and a drop in business confidence highlight ongoing economic uncertainty due to tariff uncertainty

Trump to Impose 25% Tariff on Venezuelan Oil Buyers – Countries purchasing Venezuelan crude, including China and India, will face a new tariff (FT)

US business activity growth accelerated in March – Service sector upturn drove growth, but manufacturing declined; Business confidence dropped to its second-lowest since October 2022 (S&PGlobal)

CFNAI increased to +0.18 in February – Economic growth showed improvement with production and income indicators contributing most to the increase (ChicagoFed)

Policy & Industry Shifts

Federal government accelerates office property disposals – GSA targets over 2M square feet in high-demand locations for quick sale to reduce operating costs (CoStar)

Residential

Rising housing costs and high mortgage rates continue to limit homeownership for Millennials and Gen Z, while institutional investors dominate the student housing market

Millennial and Gen Z homeownership rates stagnated in 2024 – Rising housing costs, high mortgage rates, and limited inventory continue to keep many young buyers out of the market (Redfin)

Institutional investors dominated student housing in 2024 – Accounting for over half of acquisitions and dispositions, signaling a market shift (Colliers)

Student housing sales hit $7.62B in 2024 – The Southeast led in volume, while the West had the highest per-bed pricing, with development surging among top firms (Colliers)

Sellers in communities of color lost $9,850 per off-MLS sale – Over twice the losses in white neighborhoods, as private listings limit exposure and lower prices (Zillow)

Office

Coworking space is booming as companies embrace flexible office solutions, while rising office vacancies and slowing construction reflect a broader market struggling with weak demand and evolving work patterns

Coworking Surges 25% YoY – National coworking space expanded to 140.1M square feet as firms increasingly embrace flexible office solutions amid shifting work models (CommercialEdge)

Office Vacancies Rise as Construction Slows – National office vacancy hit 19.7%, with Boston seeing a 490 bps surge, while new office construction remains at a decade low due to weak demand (CommercialEdge)

Industrial

Hyundai’s major U.S. manufacturing investment highlights a push to bolster domestic production and sidestep tariffs, fueling occupier demand for industrial assets as companies seek cost savings and customization, while older buildings dominate sales as investors shed dated properties

Hyundai's plans $21B US Investment – Hyundai is investing $21B in US manufacturing, including a $5.8B steel plant in Louisiana, to expand EV production and mitigate tariff risks (CNBC)

Occupier Demand for Industrial Assets Grows – Industrial occupier acquisitions surged 32% in 2024, with a 5% increase in average prices due to long-term cost savings and customization opportunities (CBRE)

Older Buildings Drive Sales – Over half of 2024’s industrial property acquisitions were for pre-1980 buildings, as investors offload older assets (CBRE)

Market Mix

Luxury Travel Demand Holds Strong – Upscale travel is projected to grow at a 7.4% CAGR through 2035, driven by high-income consumers (GlobeSt)

Earnings

KB Home’s earnings miss and lowered guidance, driven by muted sales and affordability challenges, suggest a cooling housing market where declining consumer confidence and reduced pricing power could pressure residential real estate values and development activity

KB Home shares fell over 7% after-hours after missing Q1 earnings and revenue expectations and lowering its FY guidance. The homebuilder recorded muted sales due to consumer uncertainty and affordability concerns and lowered its average sales price for homes (Barrons)

Financings

Rithm Sells $900M Mortgage Fee Bonds – Rithm Capital’s largest securitization of mortgage servicing rights, the second non-recourse, non-rated deal (Bloomberg)

M&A

Naftali to Buy Manhattan Luxury Apartment Building for $800M – Naftali Group will acquire 800 Fifth Ave. from Spitzer Enterprises and Winter Organization amid strong residential demand (Bloomberg)

Extell Purchases $175M Manhattan Fifth Avenue Lot – The acquisition of 576 Fifth Avenue completes Extell's full block for a $1B office and retail tower anchored by Ikea (CommercialObserver)

JLL Acquires Javelin Capital – JLL expands its clean energy services by acquiring renewable energy investment bank Javelin Capital, enhancing its capital markets platform (PRNewswire)

Distress Watch

San Francisco office vacancies rise to 36.6% – Tenants vacating more space than leasing amid remote work trends, though leasing activity showed slight improvement (TheRealDeal)

Proptech & Innovation

Snappt Uses AI to Detect Multiamily Fraud – The company’s AI system identifies fraudulent rental applications, as 10% of applicants submit faket documents (GlobeSt)