Even as the commercial real estate market navigates a challenging economic landscape, a handful of major U.S. cities are driving a disproportionate share of investment activity — and reshaping the types of projects investors are pursuing. In the first half of the year, the nation’s top 12 commercial real estate markets accounted for nearly $68 billion in sales, representing 37% of total volume, according to Avison Young’s U.S. investment sales report.

That concentration of investment is being powered by a web of interconnected trends, most notably the growing appetite for adaptive reuse. Office-to-residential conversions are emerging as a defining feature in markets such as Washington, D.C., San Francisco and other legacy central business districts. Avison Young attributes this surge to a mix of factors: lenders working through distressed loans, government-led property dispositions, and broader changes reshaping urban cores. Beyond traditional buyers, a diverse set of investors is fueling redevelopment pipelines, backing projects such as data centers, alternative housing and mixed-use developments.

The District of Columbia has taken a national lead in office-to-residential initiatives as federal agencies sell off properties in a bid to cut spending. Phoenix and Atlanta are also ramping up redevelopment efforts, though their focus extends beyond residential conversions to broader repositioning strategies.

Another clear shift is occurring in where buyers see opportunity. Many are targeting assets with strong upside potential — including development sites, raw land and value-add properties. The trend is evident in Dallas, where development sales volume surged 680% year-over-year, and in Denver, where it skyrocketed by 1,160%. San Francisco, Phoenix and Atlanta also recorded significant growth in capital flowing toward development and repositioning, a reflection of slowing activity in traditional core asset trades.

The investor profile in these markets is changing as well. Private investors now account for between 60% and 70% of sales volume in most top metros, according to Avison Young. Institutional and cross-border capital remains active, but it is concentrating on select cities and trophy properties in places like Denver, Washington and Dallas. In San Francisco, a growing share of acquisitions is coming from technology players and groups seeking alternative uses. Overall, Avison Young’s report noted that risk appetites are widening, with new entrants pursuing non-traditional returns and unconventional property types.

Looking ahead, the firm expects deal flow to accelerate in the second half of the year as interest rates stabilize and lending conditions gradually improve. Core themes — including a flight to quality, a focus on value-add and adaptive reuse and the stability of multifamily assets — are likely to remain central to investor strategies.  – more at globest.com

 

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