There is no denying 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 multifamily, office and retail data from Moody’s Analytics supports this commentary by suggesting “the worst fears have yet to ring true.” However, Moody’s Analytics Senior Economist Lu Chen and Head of CRE Economics Thomas LaSalvia note that “the industry is still on a knife’s edge.” Multifamily appears to be holding strong while office remains unchanged from last quarter; meanwhile, they suggest “retail is in it for the long haul”.
Multifamily: Still Stable
Moody’s metrics indicate national average vacancy rates remain at 5%, with construction delivery slightly slower than expected due inflationary pressures and increased financing costs. Net absorption has ticked up though supported by an ongoing strong job market coupled with slowing single-family housing activity. Quarter-over-quarter rent growth was marginally higher but nowhere near double digits reported during peak 2022; Chen & LaSalvia noted rent growth close pre-pandemic levels instead.
Office: Little Changed Yet Stressed
It comes as no surprise that office construction significantly slowed down given underutilization continues being an issue – American workers are coming into offices only half as frequently compared 2019 due overall economic uncertainty . As such ,office demand remained unstable in negative territory accordingto experts ; average national vacancy stands at 18 .9% uncomfortably close its historical peak back 1991 during Savings & Loan Crisis .
Retail : Buoyed By Consumer Confidence
Though heavily impacted by ecommerce expansion plus COVID restrictions/lockdowns , surprisingly strong pent up consumer demand brought opportunity for retail performance turn corner ; neighborhood/community shopping center performance continued improving while construction delivery remains sluggish resulting in vacancy levels staying pre pandemic 10 .2 % level alongside slight increase both asking /effective rents quarter over quarter basis ..
