Understanding the demand drivers is crucial in making informed decisions about commercial real estate development and investment. According to John Chang of Marcus & Millichap, supply is also a significant factor to consider. In a recent video, Chang emphasized the importance of monitoring supply levels in all four main sectors: office, retail, industrial, and multifamily.
In terms of office space, there will be approximately 67 million square feet added by 2024 according to Marcus & Millichap’s forecast. Despite this seemingly high number and an 18% vacancy rate currently present in the market, Chang notes that construction activity is only half of what it was during the early 2000s with most projects being build-to-suit developments located in suburban areas.
The retail sector has also seen a decrease in new supply since the Global Financial Crisis with only around 40 million square feet expected to be delivered this year – about three-quarters less than previous years’ construction pace. This limited new supply has contributed to outperforming vacancy rates at just under 5%.
On the other hand,the industrial sector continues its rapid growth with an estimated delivery of over360 million square feet by2024,resultingin a higher vacancy rateof6.1%. The multifamily sectorisalso experiencing record-breaking growthwithan anticipated additionof480 thousand unitsby2024.Chang predicts thatthis increase insupplywill leadtoa6 .1%vacancyrateandstrongnetabsorptionrates.ThisgrowthisfurtheraidedbythecontinuinghousingshortageintheUnitedStatesandthefactthatmanyindividualscan’taffordhomeownershipcosts .
While completions may exceed absorption rates for apartmentsin2024 ,Chang anticipates aslowdowninthepipelinefornewconstructionbeyondthatyear.Thismeansdemandwilllikelyoutpacesupplyagain,makingitcrucialtokeepaneyeonCREsupplylevelsmovingforward.
This article originally appeared on Connect CRE.
