REITs Aren't Broken - They're Recalibrating

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This should be our last week of travel. We left Texas last Monday and drive up to Memphis outspend a few days taking in some history blues and BBQ.

Tomorrow we are off to Greensboro and move into the new digs (and I’ll start recording videos again, too).

This week I want to take a few minutes and dig into the state of the commercial real estate market.

It has been a few minutes since we took a deeper look.

The commercial real estate market in 2025 isn't broken, it’s recalibrating. Smart investors understand that volatility isn't a threat; it's an opportunity waiting to be understood, a nuanced landscape where careful observation reveals hidden value.

Right now, Class A and trophy properties are entering one of the more interesting inflections points we’ve seen in a decade. As the rest of the commercial real estate market deals with overleverage, weak demand in commodity office space, and rising cap rates, there’s a notable bifurcation happening—and it’s favoring high-quality assets in premier locations.

Let’s start with the fundamentals: Class A and trophy assets, particularly in top-tier metros like Manhattan, Boston, Washington D.C., and San Francisco, have proven resilient even in a high-rate environment.

These buildings offer modern amenities, sustainable design, prime location, and strong tenant rosters. As a result, they’ve continued to attract tenants even as older, commodity office buildings struggle with double-digit vacancy rates.

Flight to quality isn’t just a buzzword anymore.

It’s become a survival strategy for corporate tenants looking to lure workers back to the office. According to JLL and CBRE, in several major markets, over 60% of all new leasing activity is occurring in the top 10% of office assets.

Los Angeles is one of the more complicated Class A office markets in the country right now, a story of two cities under one zip code.

On the one hand, you’ve got a secular shift away from lower-tier properties, particularly in Downtown LA, where office vacancy is pushing past 30%. But zoom in on the premier pockets, Century City, Beverly Hills, Santa Monica, and you find remarkably strong fundamentals for Class A and trophy buildings. In those enclaves, vacancy is much lower, rents are holding up, and tenants are still willing to pay a premium for prestige and amenities.

That’s where the smart REIT money has positioned itself.

Those are the LA-focused REITs we own.

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