2025 commercial real estate M&A outlook

At the end of 2024, Blackstone completed a $16 billion acquisition of AirTrunk, capping a record-breaking year for data center deals. The surge in demand for data center capacity, driven by AI and cloud computing, has made these centers a hot investment for private equity firms, who have driven 80% of recent deals.

Data center operators are also exploring the energy utilities sector. Prologis is looking into onsite energy production and storage, Amazon has invested $334 million in small modular reactors, and Equinix is signing clean energy agreements.

In early 2025, China's lower-power AI model, DeepSeek, initially caused a dip in data center stocks. However, analysts believe these AI models could boost data center demand by accelerating AI adoption. As data centers grow to support AI workloads, investors might seek innovative power solutions to maintain asset value.

Investors in office space have faced disappointing news post-pandemic, with high vacancies and costly borrowing straining the market. Industry insiders were less optimistic about offices than any other property sector in Deloitte’s 2025 global real estate outlook survey.

However, as more employees return to in-person work, US companies are seeking modern, energy-efficient, and amenity-rich office spaces. These properties are becoming scarce in high-demand cities like Los Angeles, Miami, and Washington, DC, driving up prices and lease transactions.

If tenant demand stays strong, more real estate companies might add office properties in 2025, benefiting urban centers eager to show post-pandemic resilience.

In Deloitte’s global real estate outlook survey, 81% of executives plan to prioritize spending on data and technology in the coming year, driven by the rise of generative AI (GenAI).

Traditionally, commercial real estate tasks like deal sourcing, vetting, and valuation are labor-intensive, relying heavily on decision-makers' expertise. Advancements in digital technology offer a chance to streamline these processes and achieve significant growth in revenue or portfolio size.

Rocket Companies’ planned acquisition of Redfin, a digital real estate brokerage, highlights this digital transformation trend. Some investors are already leveraging AI; JLL uses a large language model for predictive modeling, while Alpaca’s real estate investment arm employs AI to efficiently organize deal information.

However, AI-generated content and decisions depend on accurate, complete data. Historically, real estate data has been fragmented and non-standardized. Significant progress is expected as companies compete to close better, faster deals.

REITs have faced ups and downs recently. In 2024, investor withdrawals from non-traded REITs exceeded fundraising due to high interest rates and office demand issues. Conversely, publicly traded REITs raised nearly $85 billion, surpassing the previous two years. M&A activity has been muted due to higher borrowing costs and valuation gaps. However, most REITs maintain strong balance sheets with growing net operating income, potentially positioning them for portfolio expansion in 2025.

President Trump's proposal to lower the corporate tax rate to 15% for domestic manufacturers, if extended to real estate companies, could shift investor preference towards corporate acquisitions over REIT conversions. Investors will closely monitor tax legislation changes in 2025.