CRE Headwinds & Tailwinds

CRE Maintains Resiliency Against Backdrop of Contrasting Headlines

• Third-quarter annualized GDP growth reached 3.4 percent, while ISM indexes point to continued economic momentum.
• Retail sales increased 6.3 percent year over year, signaling resilient consumer spending.
• Corporate investment rose 12.1 percent year over year, highlighting continued strength in business spending.
• Still, various headwinds persist, with home sales down 2.2 percent and CPI inflation elevated at 3.7 percent.
• Interest rates have moved higher, with the 10-year Treasury near 5 percent, while consumer sentiment remains near record lows.

• Industrial vacancy declined to 7.6 percent in the third quarter as space demand strengthened.
• Segment construction has fallen substantially over the past two years, helping improve the sector’s supply-demand balance.
• Large warehouse-distribution properties are leading the recovery, with vacancy for facilities over 750,000 square feet falling 260 basis points over the past year.
• Cincinnati, Cleveland, Detroit, Milwaukee, and Minneapolis-St.Paul rank among the lowest-vacancy industrial markets.
• Stabilized apartment vacancy averaged 5.7 percent in the Sun Belt versus 3.8 percent elsewhere, reflecting continued regional divergence.
• Including properties still in lease-up, effective vacancy rises to 7.3 percent in the Sun Belt and 4.4 percent outside the region.
• The markets with the lowest apartment vacancy rates include New York, San Jose, Detroit, and Milwaukee.
• Despite an uneven macroeconomic environment, performance varies significantly by market, property subtype, and asset, creating opportunities for targeted investors. 

• Office vacancy declined to 15.8 percent, supported by positive absorption for 10 consecutive quarters.
• Vacancy varies considerably by market, with Riverside-San Bernardino, Las Vegas, Miami-Dade, Indianapolis, and Tampa-St. Petersburg well below the national average.
• Office headwinds remain concentrated among older properties in the urban cores of slower-growth markets.
• Newer, amenity-rich office spaces outperformed, highlighting the growing importance of location, quality, and vintage.
• Multi-tenant retail vacancy held steady at 5.8 percent for the third straight quarter as absorption kept pace with new supply.
• Retail vacancy remains only 40 basis points above its level two years ago, indicating relatively healthy market fundamentals.
• New tenants continue to backfill vacated retail space, generally at higher rents, while vacancy across major retail subtypes has converged near 4.9 percent.
• Miami-Dade, San Jose, Boston, Austin, and Northern New Jersey rank among the lowest-vacancy multi-tenant retail markets.