LightBox CRE Monthly Commentary: January Surprises Make for Unusual Start to the New Year
By: Manus Clancy , Head of Data Strategy at LightBox
During the election campaign of 2024, President Trump promised that, if elected, he would begin disrupting Washington immediately upon taking office. The new administration was true to its word. In the 11 days after taking office, the president implemented tariffs on Canada, Mexico, and China; rescinded many Biden-era policies via Executive Order; offered most Federal employees an employment buyout; and announced a freeze of many Federal spending line items.
But while that kept market watchers on their toes, it was a series of unexpected events in January that pushed volatility higher.
Most notable was the announcement out of China’s DeepSeek that it had been able to replicate a version of Open AI in just a few months and at a fraction of the cost of previous AI platforms. The news sent shares of some of the biggest tech names sharply lower as the Nasdaq dropped more than 3% after the announcement, including tech darling Nvidia ($600 billion, in fact). But it wasn’t just tech stocks that got hammered. Many big-name energy stocks sold off by 20% as the narrative that power to supply the needs of AI model builders would surge in 2025 and beyond came into question.
Events Weigh on CRE
The DeepSeek announcement also brought into question the surging demand for data centers and power plants. Throughout the last months of 2024 and January 2025, tech firms had been paying $100 million and up for land to develop new data centers and just days before the DeepSeek news, Blackstone spent $1 billion on the Potomac Energy Center natural gas plant.
Commercial real estate (CRE) operators thrive during periods of low interest rates and muted volatility. ?January offered little of that.
Beyond the DeepSeek news, there were several other headlines that kept investor enthusiasm in check.
The tragic fires in Southern California were another painful reminder that natural disasters can strike anywhere and at any time. Over the last few years, CRE property owners have been walloped with spiking insurance costs. The fires in SoCal will once again put the spotlight on insurance costs and availability in 2025.
In the financial markets, interest rates surged to start the month. The yield on the 10-year Treasury began the month at 4.58% and jumped to over 4.80% by the second week of January. By the end of January, the yield on that bond fell back to 4.58%. The spike served as a reminder for investors of how much rates had climbed since September 2024, when the yield stood at 3.73% on September 20.
CRE professionals entered the New Year with a healthy dose of optimism.? Many of the events of January tested that enthusiasm and left CRE professionals hoping for a less…ahem…interesting February.
Apartment Sales Begin the Year Just Where They Left Off
The apartment sales market remained buoyant in January with more than a dozen sales of $100 million or more.
Topping the list was the sale of the 411-unit Brentford at the Mile in Tysons Corner, VA for more than $167 million. The building was constructed in 2023.
Other nine-digit sales took place in Alexandria, VA; Gaithersburg, MD; Evanston, IL; Redmond, WA; and Woodland Hills, CA.
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The big-ticket sales were represented by a diverse buying group including Sentinel Real Estate, DSF Group, Hines, Fairfield, Pacific Urban, TA Realty, and Bell Partners.
Someone Said Data Centers?
As we noted above, data centers had been in high demand prior to the DeepSeek news. We will be watching to see if the market now takes a breather from investing in this sector or not. But before the announcement, DigiCo Infrastructure REIT?paid nearly $250 million for a two-property data center portfolio, 100% leased to State Farm in Texas and Kansas. The Richardson, TX site spans 129,170 sq. ft. on 15 acres, and the Olathe, KS facility covers 192,550 sq. ft. on 20 acres.
In Fredricksburg, VA, 504 acres of land entitled for data center development was sold for more than $300 million. The future home of a hyperscale facility, located at the Stafford Technology Campus just off Interstate 95, sits across from Stafford Regional Airport. Stack Infrastructure, a Denver-based data center developer and operator, acquired the site on January 9 with plans to construct 19 data centers capable of 1.8 gigawatts of power capacity.
NYC Hotel Sale
We’ve noted before that hotel sales were anemic in 2024.
The NYC market saw a pause in that trend last month with the $175 million sale of the Kimpton?Hotel Eventi?to Blackstone. Built in 2010, the 292-lifestyle hotel is in Manhattan’s Chelsea neighborhood, close to both corporate hubs and leisure destinations. The sale represented about $600,000 per key.
In South Florida, the PGA National Resort sold to Henderson Park for $425 million. The sale represents a nearly doubling of the 2018 sale price of $218 million.
Office Market: Sales and Discounts Plentiful
One of the narratives of 2024 had been the surprisingly high number of office sales. Historically, during periods of deep value declines, property owners will cling to assets for years, hoping for that miraculous rebound. (See Class B/C malls circa 2017-2022). That has not been the case with offices, as intrepid buyers have been able to pick up CBD offices for 75% or more below prices paid five or ten years ago.
That trend continued in January.
The most shocking of sales came in Minneapolis where the Ameriprise Financial Center sold for just $6.25 million. That was a 97% discount to the 2016 sales price of $200 million. The 31-story building spans 960,000 square feet—at $6.25 million, the price per square foot comes to just $6.50, a steep decline from its 2016 sale price of over $200 per square foot.
Other notable sales:
We’ll be tracking key developments this month to see what February holds for CRE. Stay tuned—and subscribe to our Insights for early access to our analysis!