Understanding demand drivers is crucial when making decisions about commercial real estate development and investment. According to industry expert John Chang of Marcus & Millichap, while demand is a key factor, it’s important to also consider supply – particularly new supply – in order to make informed decisions.
Chang recently discussed the state of supply in four main real estate sectors:
Office: Decreasing Supply
Marcus & Millichap projects that 67 million square feet of new office space will be delivered by 2024. Despite a vacancy rate of close to 18%, Chang notes that this level of construction is only half what was seen in the early 2000s and mostly consists of build-to-suit developments in suburban areas.
Retail: Limited Supply
The retail sector has also seen slow growth with only around 40 million square feet expected to be delivered this year – significantly lower than pre-financial crisis levels. This has contributed to a forecasted vacancy rate for retail properties at just under 5% by 2024.
Industrial: Increasing Supply, Higher Vacancy Rates
In contrast, industrial properties are seeing rapid growth with an estimated delivery of over three times more square footage than retail properties by the end of next year. This increase will likely lead to higher vacancy rates reaching approximately six percent.
Multifamily: Record-Breaking Construction Levels
The multifamily sector is expected set a record for apartment construction with around half a million units being added by the end o
