**U.S. Economy Grows 4.3% in Q3 2025 Amid Pre-Shutdown Strength, Commercial Real Estate Sees Mixed Impact**
The U.S. economy expanded at a rate of 4.3% in the third quarter of 2025, fueled by increased consumer spending on nondurable goods and services, higher government expenditures, and a rise in net exports. Personal income grew by a modest 0.4%, while international trade in goods and services, as well as second-quarter international transactions, posted declines of $52.8 billion and $251.3 billion, respectively.
According to Marcus & Millichap’s “Gross Domestic Product” brief, the Q3 gains in real GDP were largely attributed to robust consumer activity and stronger government outlays. However, these gains came before the federal government shutdown that ran from October 1 to November 12. The shutdown caused delays in economic data and is expected to negatively impact GDP growth in the final quarter of the year.
The firm cautioned that Q3’s momentum is unlikely to carry into Q4, citing the influence of the shutdown and a slight decline in private domestic investment. For the full calendar year, GDP is projected to grow by approximately 2%.
The Labor Market and Inflation
The labor market remained relatively tepid heading into the final months of 2025. Marcus & Millichap’s “Economic Update” brief noted that payroll gains were modest within the private sector during October and November. Simultaneously, government employment numbers declined due to earlier layoffs, with severance payments expiring.
On inflation, the outlook was mixed. November’s core Consumer Price Index (CPI) registered a 2.6% year-over-year increase. That said, the brief suggested the inflation figure might be understated due to data gaps stemming from the shutdown. If inflation trends upward while hiring softens, household finances could come under renewed strain. However, lower borrowing costs and ongoing fiscal support may help maintain economic stability.
Impacts on Commercial Real Estate Sectors
Here’s how these broader economic shifts are affecting the four major commercial real estate sectors:
**Multifamily: A Mixed Bag**
High barriers to homeownership, particularly amidst reduced housing supply, are keeping many households in the rental market. This has helped stabilize multifamily vacancies, which were also supported by a slowdown in new deliveries—2025 saw the lowest completion total in three years.
Despite this, the market remains bifurcated. A growing number of Class C apartment properties are offering concessions to attract tenants. In November, incentives were offered on roughly 20% of Class C units, a figure significantly higher than what’s recorded in upper-tier properties.
**Retail: Possible Softening Ahead**
Retail vacancies remain low despite more than 13 million square feet of space being relinquished earlier in the year. Slow construction activity has allowed the market to absorb excess supply.
However, retailers may start scaling back expansion plans due to declining consumer confidence and uncertainty around U.S. trade policy. Though total savings levels have risen, disposable personal income was flat in Q3, potentially curbing short-term spending at stores and restaurants.
**Office: Building Momentum**
The office sector is benefitting from a shrinking development pipeline and shifting tenant preferences. Demand is especially strong for Class A, amenity-rich spaces in major cities. Additionally, modern, smaller suburban office spaces are experiencing tenant interest.
Looking ahead, analysts predict a smaller construction pipeline for 2026, which may reduce the amount of new space available and prompt some tenants to consider retrofitted, older office stock.
**Industrial: Managing Abundant Supply**
Although the pace of industrial deliveries is easing, completions have exceeded the long-term average every year for the past nine years. This influx of supply has pushed national vacancy rates upward.
Still, the market remains relatively balanced. About half of recent completions were concentrated in ten major metro areas, allowing roughly one-third of U.S. markets to maintain Q3 vacancy rates below the national figure.
— End of Report —
