Optimism is said to be growing for the deployment of hundreds of billions in capital into North American commercial real estate in the second half of 2025 as sentiment builds from the year's start.
Dry powder, or uninvested capital held by investment funds, grew to records in 2022 and 2023 at a time of high interest rates and weak demand for deals. While some was invested last year, much remained on the sidelines in early 2025 as executives analyzed the Trump administration's policy changes on trade, federal spending and foreign policy, according to mid-year outlooks from two prominent real estate consulting firms, PwC and Bain & Co.
Real estate brokerage professionals and private equity executives interviewed by CoStar News agreed with that characterization in the reports, and Bain said pressure is mounting within the industry to utilize these funds and source fresh new capital. It added that if tariff uncertainty dissipates, momentum could return more quickly than anticipated, and holders of available cash would be poised to grasp emerging opportunities.
"There's nothing fundamentally broken in the market," Hugh MacArthur, chairman of the global private equity practice at Bain, said in the firm's report. "Buyers and sellers can still transact — and history shows that strategic buyers with a strong M&A agenda remain active in turbulent times. In any disruption there are winners and losers — and the best opportunities often come at the most extreme moments of uncertainty, something that's still true in 2025."
Tim Bodner, U.S. real estate leader for PwC, offered a similar outlook: "The commercial real estate industry continues its transformation, with significant value-in-motion that will be the catalyst to drive deal activity higher in 2025 and beyond."
There is a substantial amount of dry powder available for commercial real estate investment across various firms, with London-based investment data company Preqin putting the number at more than $350 billion. Much of it is held by the largest private equity and alternative investment firms, including Blackstone, Brookfield Asset Management, Ares Management, KKR, Carlyle Group, Apollo Global Management, TPG Capital and Starwood Capital Group.
Billions on sidelines
Blackstone leads all private equity firms in available capital, according to CoStar data. The investment firm reported having $177 billion to spend globally, but it did not break out the North American portion of that total. One Blackstone fund, Blackstone Real Estate Partners X, has $18.5 billion to spend, according to CoStar data.
Blackstone and Apollo got the year off to a promising start.
Blackstone completed a $4 billion acquisition of Retail Opportunity Investments in February. In the same month, Apollo announced an agreement to acquire Bridge Investment Group for $1.5 billion.
Those deals were driven, according to the companies, by factors such as a perceived bottoming of real estate valuations, reduced new supply in some sectors due to high construction costs, and the opportunity to invest when others have been hesitant.
However, that upbeat first-quarter activity was weakened as economic headwinds triggered by turmoil over tariffs emerged in the second quarter.
"We had some pretty good momentum coming into 2025," Aaron Jodka, director of research and U.S. capital markets at the real estate firm Colliers, told CoStar News. "It did start to ease as we had a little bit of uncertainty developing in the broader economy. There were questions on interest rate, policy implementation of the new administration's tariff discussions that are on again, off again, changing, moving, etc. So, the uncertainty that's pervasive in the market today is something we are certainly watching. We do need some additional clarity on longer term trade policies for the market to reestablish what the future could hold."
Despite shaky economic headlines, many firms have expressed optimism about making property investments — particularly later in the year.
"Real estate is a very simple business. It's determined by supply and demand and the cost of capital. And the good news is new supply is down dramatically from where it was a few years ago," Jon Gray, president and chief operating officer of Blackstone, said in the firm's recent Market Views online video series. "And interestingly, these tariffs will mean it's even more expensive to build, so there'll be less new supply. In addition, the cost of capital, which went way up back in the fall of 2023, that's all come down."
Spend it or lose it
In addition to real estate markets hitting a bottom, if not improving, there is added pressure on the part of private equity firms to spend their built-up capital.
Much of the dry powder was raised three or more years ago and has been left unspent. Funds have set periods during which they must spend money they've taken in from investors, and that time is ticking down.
More than $63 billion of dry powder is held by funds formed three to five years ago, according to CoStar data. Blackstone, Brookfield and Ares are the three largest holders of that capital, which combined totals more than $29 billion.
Many funds have seen redemption requests increase, meaning investors want their money back. On average, outflow, or investors selling shares, has been higher than new fundraising for 10 straight quarters, according to the brokerage firm Newmark.
"Redemption queues remain an issue for many funds, driven by persistent if narrowing gaps between [net asset values] and market values," Joseph Biasi, head of commercial capital markets research for Newmark, said in an email to CoStar News.
Dry powder at closed-end funds that raise capital and offer investors a fixed number of shares is 13% below its December 2022 peak, Newmark data shows.
The pressure to spend is ramping up the competition for deals, according to Biasi. That has the effect of lowering expected returns.
"Equity funds want to deploy capital, but they also need the deals to deploy them," he said. "The issue is in strong offerings, often times there is strong demand for the product, and that can slow down dealmaking for those trying to deploy with internal rate of return targets." Funds with lower profitability goals typically pursue a wider range of investments.
Sectors to watch
While industrial properties have dominated private equity investments, firms anticipate a shift toward alternative property types.
While industrial real estate is still expected to have tailwinds, alternative assets such as data centers, student housing and healthcare properties are seeing stronger demand and continued interest as long as fundamentals and returns remain strong, investors said.
"The alternative sectors have demonstrated consistent performance and lower volatility compared to traditional real estate through three major market cycles, including the global financial crisis, COVID, and the current higher interest rate environment," Geoff Regnery, partner and global head of investor relations at Harrison Street, told CoStar News.
Alternative sectors are also supported by long-term structural demand drivers, including an aging population, increased university enrollment and technological trends such as the demand for artificial intelligence.
"Take data centers, for instance," PwC's Bodner said. "They sit at the convergence of real estate, infrastructure and power — and with data consumption exploding, institutional capital is chasing scalable platforms that can meet those demands. In fact, data center acquisitions surged by over 60% in 2024 alone in the U.S."
"This trend reflects a broadening investor mindset: one that is moving beyond traditional sectors like office and retail, and toward assets that offer durability, recurring income, and relevance in a tech-enabled, services-driven economy," he added.