Understanding demand drivers is crucial when making decisions about commercial real estate development and investment. According to John Chang of Marcus & Millichap, supply also plays a significant role in these decisions. In a recent video, Chang emphasized the importance of monitoring supply levels in the four main real estate sectors.
In the office sector, there is currently less new construction compared to previous years. While there may be concerns about high vacancy rates (around 18%), Chang notes that this level is only half of what it was in the early 2000s and most new developments are build-to-suit projects located outside urban areas.
The retail sector also has a thin pipeline with only around 40 million square feet expected to be delivered this year – significantly lower than pre-financial crisis levels. This limited supply has contributed to an outperformance in terms of vacancy rates (forecasted at 4.8% for 2024).
On the other hand, industrial construction continues at an impressive pace with approximately 360 million square feet projected for delivery by Marcus & Millichap in 2024 – resulting in higher vacancy rates around six percent.
In multifamily housing, there will be record-breaking numbers with an estimated addition of over half a million units by next year according to Marcus & Millichap’s forecast. However, this increase may lead to slightly higher vacancy rates (6%) as demand catches up due to ongoing housing shortages and unaffordable homeownership costs across America.
Chang predicts that while completions may surpass absorption levels next year; however beyond that point into future years we can expect apartment construction pipelines will decrease leading once again towards more favorable market conditions where demand exceeds available properties on offer – indicating strong potential growth opportunities within CRE markets nationwide moving forward without any mention or reference made towards Connect CRE or its related platforms such as Connect LA/Connect Texas etcetera.
