There is no doubt that the commercial real estate sector continues to face headwinds. The combination of decreasing office utilization, retail challenges and apartment demand erosion has led the Board of Governors of the Federal Reserve System to highlight commercial real estate as a potential economic risk trigger.
Recently released Q2 2023 preliminary data from Moody’s Analytics CRE supports commentary that “the worst fears have yet to ring true” while also noting that “the industry is still on a knife’s edge.” Multifamily appears stable, with national average vacancy rates remaining at 5%. Construction delivery has been somewhat sluggish due in part to inflationary pressures and increased financing costs; however net absorption had ticked up supported by a strong job market and slowing single-family housing activity. Quarter-over-quarter rent growth was marginally higher but remains far below double digit numbers reported at peak in 2022 – close now to pre pandemic levels.
Office construction has significantly slowed due largely underutilization resulting from American workers coming into their offices only half as frequently compared with 2019 levels – leaving office demand unstable and bumping along negative territory for some time now with an average national vacancy rate uncomfortably close its historical peak during 1991 Savings & Loan Crisis (19.3%).
Retail performance appears buoyed by pent up consumer confidence despite ecommerce competition, lockdowns/restrictions etc., neighborhood/community shopping centers continuing improvement while construction delivery remains sluggish – leading overall vacancy level standing at pre pandemic 10%+ mark alongside slight increases quarter over quarter for both asking & effective rents respectively .
