Leasing velocity slowed down in commercial real estate during the year’s second quarter. While there is still much uncertainty about the total impact of the bank failures earlier in the year, there are rising concerns and speculation about where commercial real estate is headed. Since commercial real estate relies heavily on small banks for capital, a pullback in lending among these banks could further impact commercial real estate. However, data shows that commercial real estate lending activity is increasing weekly. Meanwhile, delinquency rates for commercial loans have increased since the end of 2022, but they remain below 1%. Nevertheless, delinquencies are expected to rise further in the year’s second half.
Here are some takeaways from this report –
- Office – The office vacancy rate reached a new record high at 13.1% at the end of the year’s first half. With hybrid work arrangements allowing for a mix of in-person and remote work, a lot of office space is left empty. Meanwhile, in their effort to reduce their occupancy cost, tenants have decreased the average square footage per person leading to lower demand for space.
- Industrial – Net absorption was nearly 40% lower at the end of the year’s first half compared to the previous year. But, along with lower demand, significantly more industrial spaces were delivered in the market. As a result, the industrial vacancy rate rose to 4.7% and rent growth eased to 8.9%.
- Retail – the vacancy rate has been unchanged for the last three quarters at 4.2%, the lowest vacancy rate among all the sectors- With inflation easing further and interest rates to stabilize later this year, the demand for retail space is expected to remain robust.
- Multi-Family – In the last 12 months, net absorption of apartments was half of last year’s level, while 22% more units were delivered during that same timeframe. Thus, this demand-supply mismatch has increased the vacancy rate to 6.9% from 5.3% a year ago. Consequently, rent growth has dropped to 1.1%, below the pre-pandemic level.
- Hospitality – The hospitality sector continued to advance at the end of the first half of the year. The hotel occupancy has finally fully recovered from the pre-pandemic level. This concludes the recovery of all three most prevailing measures of hotel performance: Average Daily Rate, Revenue Per Available Room, and Occupancy Rate.
Read the full report – HERE