Market Overview

In Q1 2024, U.S. commercial real estate investment volume totaled $71 billion, reflecting a 19% yearover-year decrease, a relative improvement compared to the 40% decline in Q4 2023. Multifamily continued to lead all sectors with $20 billion in investment volume, followed by industrial & logistics at $16 billion, and both retail and office sectors recording $15 billion each. Notably, office investment included $5.3 billion from mergers & acquisitions activity, indicative of strategic consolidations in the sector. New York and Los Angeles remained dominant in annual investment volume, showcasing the sustained appeal of major markets amidst the overall market contraction.

Cross-border investments decreased significantly, down 58% year-over-year to $4 billion in inflows for Q1, illustrating the continued global investment landscape challenges. The financing environment also reflected these trends, with the CBRE Lending Momentum Index falling 11% quarter-over-quarter and 32.7% year-over-year to 168. This decline was primarily due to elevated interest rates and tighter credit conditions, which dampened lending activity.

The NCREIF index, which tracks the performance of core institutional property markets in the U.S., posted a -7.2% return over the year, highlighting the broader market challenges. Despite these hurdles, the hotel sector showed resilience with a positive annualized return of 8.7%, contrasting sharply with the steep declines in office properties, which plummeted to -17.4% annualized.

In the lending market, multifamily agency debt volume decreased to $19.2 billion in Q1, down from $27.1 billion in Q4. The average loan-to-value (LTV) ratios for multifamily rose slightly, reflecting increased risk-taking amidst a cautious market. Banks emerged as active lenders, although their share of non-agency lending decreased to 23% in Q1 2024 from 41% in Q1 2023 due to rising regulatory challenges and a shift towards more conservative lending practices.

Despite the challenging investment climate, certain sectors like multifamily and industrial logistics demonstrated resilience, supported by strong fundamentals and adaptability to the changing economic landscape. As the market navigates through high interest rates and economic uncertainties, the focus remains on sectors that show potential for sustainable growth and returns.

U.S. Commercial Real Estate Investment Volume by Quarter ⇩

U.S. Commercial Real Estate Investment Volume by Sector ⇩

U.S. Commercial Real Estate Investment Volume by Market (Last 4 Quarters) ⇩
(USD Billions / % Figures Shows Change from Trailing 4 Quarters in Prior Year)

U.S. Real Estate – Multifamily Market

In the first quarter of 2024, the U.S. multifamily market showed signs of stabilization amid a challenging environment, with vacancy rates rising slightly due to a continued influx of new supply. During the quarter, 73,700 units were completed, raising the rolling four-quarter total to a record 429,500 units. Despite this high supply, net absorption reached 52,200 units, narrowing the gap between supply and demand and marking the third-highest Q1 absorption total in over 20 years.

The national vacancy rate increased by 10 basis points to 5.5%, a slower rate than the 20 basis point increase in the previous quarter. Although job growth and household formation continued to drive positive absorption, the vacancy rate will likely rise further in the short term due to persistent new completions. The vacancy rates across asset classes varied, with Class B maintaining the lowest vacancy rate at 5.4%.

Average monthly rent remained mostly flat quarter-over-quarter at $2,163. Year-over-year rent growth stayed steady at 0.4%, reflecting seasonal stability. Some markets, particularly in the Northeast and Midwest, saw positive year-over-year rent growth, while others struggled with negative rent growth due to high supply levels.

Investment volume declined by 28% quarter-over-quarter to $19.8 billion, reaching its lowest level since
Q2 2020. Owners have largely refrained from selling properties, awaiting potential interest rate cuts.
Despite the downturn, multifamily remains an attractive sector, accounting for the largest share of total
commercial real estate investment volume at 26% in Q1 2024.

As the market proceeds into the next quarter, the balance between supply and demand will be crucial in
determining rent growth trends. The market’s fundamentals suggest continued resilience as absorption
levels close the gap with supply and construction starting to decline, paving the way for fewer new
completions in 2025 and beyond.

U.S. Multifamily Vacancy Rate and QoQ % Change ⇩

U.S. Multifamily Vacancy Rate by Class ⇩

U.S. Multifamily Monthly Rent and YoY % Change ⇩

U.S. Real Estate – Commercial Retail Market

In the first quarter of 2024, the U.S. commercial retail market experienced a notable slowdown in net absorption due to a rise in store closures. Net absorption declined by 71% quarter-over-quarter to 3.7 million square feet, representing only 20% of the 10-year quarterly average. This significant decline underscored the impact of underperforming store closures, particularly in markets struggling to backfill vacant spaces.

Despite this, the overall retail vacancy rate remained steady at 4.7%, consistent with the previous quarter. Vacancy rates across different retail segments showed mixed performance: lifestyle centers and malls saw a decline of 10 basis points to 5.6%, while power centers’ vacancy rate decreased by 10 basis points to 4.9%. Neighborhood, community, and strip centers maintained a steady vacancy rate of 6.5%.

High construction costs kept new retail development low, with Q1 completions falling 32% to 5.8 million square feet from the previous quarter. However, the pressure from the supply reduction helped to maintain strong rent growth. The average asking rent rose by 0.9% quarter-over-quarter to $24.07 per square foot, while the annual growth rate stood at 2.7%, the highest since Q1 2017.

Texas and Florida dominated new retail development, with six of the top ten markets for retail completions located in these states. Chicago, Minneapolis, and St. Louis led in net absorption during the quarter, particularly in suburban submarkets.

Looking forward, high construction costs are likely to continue limiting retail development. Nevertheless, secondary and tertiary markets have shown promising rent growth, indicating potential opportunities to meet market demand and sustain rent growth amidst economic uncertainty.

U.S. Retail Construction Completions ⇩

U.S. Retail Vacancy Rate by Property Type ⇩

U.S. Retail Asking Rent and Y-o-Y% Change ⇩

Data Sources: U.S. Census Bureau, U.S. Department of the Treasury, U.S. Board of Governors of the Federal Reserve System, U.S. Bureau of Labor Statistics, CBRE Research, CBRE Econometric Advisors, Reuters, Schroders, Nasdaq, Moody’s

For additional information, please contact:
Grandway Group
Attn:     Client Relations
Tel:        +1 626-357-1200
Email:   Client-Relations@grandway.com

Market Overview

U.S. commercial real estate investment volume continued to decline, falling 44% year-over-year to $81 billion in Q4 and $348 billion annually, leading to the lowest annual total since 2012. Multifamily continued to lead all sectors with $26 billion in investment volume, followed by industrial & logistics at $19 billion and office at $14 billion. New York and Los Angeles led in annual investment volume, emphasizing the enduring appeal of major markets despite overall declines. Cross-border investments saw a decrease of 30% year-over-year to $4.7 billion inflows in Q4, reflecting the challenges faced in the global investment landscape.

The annualized total return of the NCREIF index, which tracks the performance of core institutional property markets in the U.S., declined to -7.9% in 2023 from 5.5% in 2022. This downturn reflects broader market challenges, particularly for office properties, which saw the most significant year-over-year decrease, with returns plummeting 14 points to -17.6% annualized. These figures highlight the varying performance across different property types and the resilience of hotel assets in the current environment. Hotels alone showed a positive annualized return of 10.3%.

The financing environment showed signs of cautious optimism in Q4. CBRE Lending Momentum Index, which tracks the pace of CBRE-originated commercial loan closings in the U.S., marked its first quarterly increase since Q1 2022 by 1%, though it remained 38.1% lower than the same quarter last year. Banks emerged as the most active non-agency lenders, accounting for 39.5% of Q4 loan volume. Multifamily agency lending decreased to $27.1 billion in Q4, influenced by higher average mortgage rates and the FHFA’s 2024 purchase volume caps.

Despite a challenging investment climate, the commercial real estate market in Q4 2023 showed resilience in sectors like multifamily and industrial logistics. High-interest rates and economic uncertainties continued to impact investment decisions, with a notable shift towards cautious lending and investment strategies. As we move forward, the focus remains on navigating the evolving market dynamics, with an emphasis on sectors showing strong fundamentals and adaptability to the changing economic landscape.

U.S. Commercial Real Estate Investment Volume by Quarter ⇩

U.S. Commercial Real Estate Investment Volume by Sector ⇩

U.S. Commercial Real Estate Investment Volume by Market (Last 4 Quarters) ⇩
(USD Billions / % Figures Shows Change from Trailing 4 Quarters in Prior Year)

U.S. Real Estate – Multifamily Market

In Q4 2023, the U.S. multifamily market endured a challenging environment involving an uptick in vacancy rates and an unprecedented surge in new completions. During the period there were 140,900 newly completed units, pushing the annual total to a record of 416,500 units, indicating robust construction activity alongside vibrant housing demand. However, this high demand was still unable to keep up with the record supply of new units, with the vacancy rate rising by a modest 20 basis points to 5.4%.

Average monthly rent declined slightly by 1.2% from the previous quarter to $2,166/unit nationwide, with a slight annual growth rate of 0.4%. This trend suggests a market recalibration amidst the influx of new supply, with expectations of stabilized rent growth in the near term.

Investment volume in Q4 totaled $25.7 billion, contributing to an annual figure of $117.5 billion, which represents a 60% decrease from 2022. Despite the downturn, multifamily retained a significant share of commercial real estate investment volume, underscoring its continued appeal to investors. The sector’s performance reflects a cautious yet strategic approach to long-term housing demand and market dynamics.

As the multifamily market moves forward, the balance between supply and demand, alongside investment trends, will be critical in shaping its trajectory. The market’s fundamentals, characterized by robust absorption and a slight moderation in rent growth, suggest a resilient sector poised for steady performance amidst evolving challenges and opportunities.

U.S. Multifamily Vacancy Rate and QoQ % Change ⇩

U.S. Multifamily Vacancy Rate by Class ⇩

U.S. Multifamily Monthly Rent and YoY % Change ⇩

U.S. Real Estate – Commercial Retail Market

The commercial retail market in the U.S. demonstrated notable resilience in Q4 2023. Net absorption reached 12.5 million square feet, bringing the annual total to 40 million square feet, with Texas markets, especially Dallas-Ft. Worth, leading in net absorption. This robust performance highlights the sector’s recovery and the strategic demand for retail spaces.

The overall retail availability rate continued to decline, hitting a historic low of 4.7%, with significant tightening in neighborhood, community, and strip center segments. This tightening reflects a growing consumer preference for convenience and locality, driving demand for strategically located retail spaces.

Construction completions were at record lows due to high costs, with Q4 seeing only 5.3 million square feet completed. On the other hand, average asking rents increased to $23.76 per square foot, indicating a healthy demand for retail spaces and the market’s ability to sustain rental growth amidst limited new supply.

Closing Q4 2023 on a strong note, the outlook for U.S. retail market remained cautiously optimistic, underscored by record-low availability rates and steady net absorption, suggesting continued demand for retail spaces, especially in economically robust markets. The sector is facing a construction slowdown, pressing for innovative solutions to match market demand despite the inflating costs.

U.S. Retail Construction Completions ⇩

U.S. Retail Vacancy Rate by Property Type ⇩

U.S. Retail Asking Rent and Y-o-Y% Change ⇩

Data Sources: U.S. Census Bureau, U.S. Chamber of Commerce, U.S. Department of the Treasury, U.S. Bureau of Labor Statistics, CBRE Research, CBRE Econometric Advisors, Bloomberg, Reuters, Schroders, WSJ.com, Zillow Group, Redfin, S&P Global, CNN Business, CBS News, World Economic Forum, The Conference Board & Deloitte Insights

For additional information, please contact:
Grandway Group
Attn:     Client Relations
Tel:        +1 626-357-1200
Email:   Client-Relations@grandway.com

Market Overview

The U.S. commercial real estate market in Q3 2023 saw investment volumes continue to decline, with a 54% year-over-year drop to $82 billion. Multifamily remained the most favored sector, albeit with a significant decrease in transaction volume to $29 billion, followed by industrial & logistics at $20 billion and retail at $15 billion. Los Angeles and New York continued to lead in market volume, though both saw considerable yearly decreases.

Cross-border investment decreased by 55% year-over-year to $3.4 billion, impacted by a strong U.S. dollar and rising interest rates. In terms of property prices, the RCA Commercial Property Price Index fell by 9% year-over-year, with multifamily prices decreasing the most at 13%, followed by office at 9% and retail at 7%.

Delinquency rates for commercial mortgage-backed securities (CMBS) rose to 4.40% in Q3, up by 30 basis points quarter-over-quarter. The NCREIF Property Index reported negative returns, with the office sector experiencing the most significant decrease at negative 17.1% annualized. Despite these challenges, private investors were net buyers, accounting for $51 billion or 62% of the total investment volume.

In the lending environment, the CBRE Lending Momentum Index indicated a slowdown in acquisition activity, falling by 3.0% quarter-over-quarter and 47.9% year-over-year. However, the rate of decline in Q3 suggests that lending activity may be nearing its trough. Loan spreads tightened for both commercial and multifamily loans, and banks remained the top non-agency lenders, followed by life insurance companies and alternative lenders. Multifamily agency lending increased to $29.8 billion in Q3, with a notable rise in mortgage rates. Loan-to-value ratios edged up for both commercial and multifamily loans. Loan constants and underwritten cap rates increased, indicating a cautious lending environment amidst economic uncertainties.

The commercial real estate market’s performance reflects the broader economic headwinds and a cautious approach from investors. High-interest rates and economic uncertainty continued to suppress investment activity, with particularly sharp declines in entity-level transactions and specific segments such as office properties. Despite these challenges, the commercial real estate market’s fundamentals are strong, supported by private investors’ continued interest and the resilience of key sectors like multifamily and retail. The sector’s future will depend on evolving market conditions, including interest rate trajectories and economic policies.

U.S. Commercial Real Estate Investment Volume by Quarter ⇩

U.S. Commercial Real Estate Investment Volume by Sector ⇩

U.S. Commercial Real Estate Investment Volume by Market (Last 4 Quarters) ⇩
(USD Billions / % Figures Shows Change from Trailing 4 Quarters in Prior Year)

U.S. Real Estate – Multifamily Market

In Q3 2023, the multifamily sector showed signs of moderation amid economic headwinds. Demand remained robust, with net absorption of 82,100 units, reflecting a rebound in seasonal demand. The overall vacancy rate nudged up to 5.1%, a slight increase reflective of high supply with 114,600 new completions. While this uptick in vacancy is a departure from the historical long-term average, the increase is equal to that of Q2 but less than that of Q1, suggesting a stabilization of supply-demand dynamics. Year-over-year rent growth decelerated to 0.7%, indicating a shift towards normalization of growth rates.

The investment volume for multifamily decreased by 8.5% quarter-over-quarter to $29.0 billion, maintaining its position as the dominant sector in commercial real estate investment. Despite the drop in investment volume, the sector has shown resilience with a 34% share of the total CRE investment volume, though well below the $75.8 billion from a year ago.

The market’s adaptability is evident, with multifamily investment still robust in the face of rising cap rates and interest rates. The prime multifamily going-in cap rate has increased by 155 basis points since Q1 2022, now standing at 4.92%. CBRE anticipates a slight potential increase in cap rates if the Federal Reserve’s interest rates continue to climb.

The market’s future will hinge on economic conditions and the Federal Reserve’s policy trajectory. However, the multifamily sector’s fundamentals remain strong, with a stabilization expected once the rate-hiking cycle concludes. The quarter’s data reflect a market in transition, adjusting to the post-pandemic landscape and shifting economic forces.

U.S. Multifamily Vacancy Rate and QoQ % Change ⇩

U.S. Multifamily Vacancy Rate by Class ⇩

U.S. Multifamily Monthly Rent and YoY % Change ⇩

U.S. Real Estate – Commercial Retail Market

The commercial retail market in Q3 2023 witnessed an increase in demand, with net absorption rising by 34% quarter-over-quarter to 9.8 million square feet, showcasing the sector’s recovery. However, total net absorption was only 52% of the 10-year quarterly average, indicating a market still stabilizing from pandemic impacts.

The overall retail availability rate decreased to 4.8%, the lowest level since 2005, with significant declines in the neighborhood, community, and strip center segments. Despite a challenging environment marked by store closures in the power center segment, leading markets like Orlando, Phoenix, Los Angeles, New York City, and Long Island saw robust absorption.

Construction completions in Q3 dropped to 5.6 million square feet, a 28% quarter-over-quarter decrease, continuing the trend of reduced new development due to high costs and tight lending conditions. Rent growth moderated, with asking rent growth falling to just over 2.1% year-over-year and quarter-over quarter growth falling below the long-term average, signaling a cautious outlook from landlords amid an economic slowdown.

U.S. Retail Construction Completions ⇩

U.S. Retail Vacancy Rate by Property Type ⇩

U.S. Retail Asking Rent and Y-o-Y% Change ⇩

Data Sources: U.S. Census Bureau, U.S. Chamber of Commerce, U.S. Department of the Treasury, U.S. Bureau of Labor Statistics, CBRE Research, CBRE Econometric Advisors, Bloomberg, Reuters, Schroders, WSJ.com, Zillow Group, Redfin, S&P Global, CNN Business, CBS News, World Economic Forum, The Conference Board & Deloitte Insights

For additional information, please contact:
Grandway Group
Attn:     Client Relations
Email:   Info@grandway.com
Tel:        +1 626-357-1200

Market Overview

In the second quarter of 2023, the U.S. commercial real estate market saw mixed performance, as different sectors faced varying degrees of challenges and opportunities amid the ongoing economic recovery. The multifamily sector showed resilience and stability, while the office sector continued to struggle with weak demand and high vacancies. Retail saw signs of improvement but faced structural changes and uncertainties.

Multifamily vacancy remained flat at 5%, and rent growth has come back down to pre-pandemic levels. Office vacancies remained high at 18.9% nationwide, and asking/effective rent stayed in the $35/$28 per sq. ft. range. Retail vacancies declined to 10.2%, and asking/effective rent remained in the $21/$18-persqft range.

U.S. commercial real estate investment volume fell 64% year-over-year in Q2 to $75 billion. Multifamily continued to be the preferred sector with $27 billion in transaction volume, followed by industrial and logistics with $21 billion. Los Angeles remained the most favored investment market on a trailing-four-quarter basis, with $43 billion in transaction volume, followed by New York with $37 billion.

Q2 saw more buying activity from private and foreign investors, while REITs and institutions sold more properties than they bought. The amount of investment capital coming from overseas investors was down to $4.9 billion, dropping by nearly 50% from Q2 last year, due to economic uncertainty and the strength of the U.S. dollar.

The commercial real estate market in Q2 reflected the uneven and uncertain nature of the economic recovery. It was also influenced by various factors, such as monetary policy, inflation, labor market conditions, consumer behavior, migration patterns, and technological innovation.

U.S. Commercial Real Estate Investment Volume by Quarter ⇩

U.S. Commercial Real Estate Investment Volume by Sector ⇩

U.S. Commercial Real Estate Investment Volume by Market (Last 4 Quarters) ⇩
(USD Billions / % Figures Shows Change from Trailing 4 Quarters in Prior Year)

Multifamily Market

The multifamily market improved in the second quarter, buoyed by increased demand and moderate rent growth. But the sector still faced some challenges with oversupply in the short-term and reduced investor interest in general.

Demand increased moderately as more people rented apartments in Q2 because economic conditions improved and household formation increased. However, at the same time, short-term supply was very high in Q2, as new buildings delivered a record 351,500 units in the last four quarters. This was mainly a result of the strong pipeline of new development projects that started before or around the beginning of the pandemic, which were completed in the past four quarters. Construction starts have decreased in recent quarters, which is expected to reduce new supply in 2024 and later.

The vacancy rate for multifamily units increased slightly to 5.0% in Q2, which is closer to the historical longterm average, suggesting that supply and demand are starting to balance out. However, different markets had vastly different vacancy rates, with some major cities having high vacancies and some smaller markets having low vacancies.

Rent growth in Q2 appeared to be normalizing and approaching the pre-pandemic long-term growth rate. The average monthly rent for multifamily units increased slightly by 1.1% in Q2 to a record high of $2,164 since 2005 (start date of our data set). On a year-over-year basis, the average monthly rent increased by 2.6%, similar to the pre-pandemic five-year average of 2.7% per year.

The investment volume for multifamily in Q2 increased 2.7% from Q1 to $27.5 billion, which is still much lower than the $95.6 billion volume seen in Q2 2022. This was the lowest Q2 volume since 2014, except for Q2 2020 because of the pandemic. It was also 27% lower than the quarterly average from 2013 to 2019. The low transaction volume was mainly the result of economic uncertainties and limited credit availability, which made acquisitions difficult. Investors were careful and picky, preferring high-quality assets in strong markets.

We expect the industry to continue to be impacted by economic uncertainty and shortage of credit, but it is a resilient industry that is unlikely to collapse.

U.S. Multifamily Vacancy Rate and QoQ % Change ⇩

U.S. Multifamily Vacancy Rate by Class ⇩

U.S. Multifamily Monthly Rent and YoY % Change ⇩

Commercial Retail Market

Retail vacancies fell slightly by 0.10% to a record low of 4.8% in Q2 2023, driven by the strong performance of neighborhood retail and strip centers as well as the growth in demand in suburban regions.

Asking rents increased to $23.21 per sq. ft., an average year-over-year increase of 2.1%, marking the largest quarterly increase since Q1 2022.

On the other hand, net absorption of U.S. retail recorded 5.9 million sq. ft., the lowest level of demand since Q3 2020, when absorption was negative at the height of the pandemic. Elevated construction costs and economic headwinds also kept construction completions at historically low levels.

U.S. Retail Construction Completions ⇩

U.S. Retail Vacancy Rate by Property Type ⇩

U.S. Retail Asking Rent and Y-o-Y% Change ⇩

Data Sources: CBRE Research, CBRE Econometric Advisors, J.P. Morgan Asset Management, Bloomberg, WSJ.com, Zillow Group, Redfin, CNN Business, CNBC, CBS News, S&P Global, The Conference Board, Deloitte Insights, Nasdaq, Bureau of Labor Statistics, U.S. Census Bureau, U.S. Chamber of Commerce, World Economic Forum, Federal Reserve Bank of St. Louis & Federal Reserve Bank of Atlanta

For additional information, please contact:
Grandway Group
Email:   Info@grandway.com
Tel:        +1 626-357-1200

Market Overview

The U.S. real estate market is facing a challenging year in 2023, as high-interest rates and a recession continued to weigh on asset values and fundamentals. According to CBRE, weakening fundamentals and higher cost of capital will generally lower asset values by an average of 10% across all sectors. In Q1, commercial real estate investment volume for the trailing 12 months fell 33% to $594 billion. Institutional and private investors were net buyers, while REITs and foreign investors were net sellers. Multifamily remained the leading sector with $25 billion in Q1 transaction volume, followed by industrial and logistics with $17 billion.

U.S. Commercial Real Estate Investment Volume by Quarter

U.S. Commercial Real Estate Investment Volume by Sector
(USD Billions)

In Q1 2023, Greater Los Angeles continued to be the preferred market for real estate investment, with a total investment volume of $51 billion, followed by New York with $42 billion and Dallas with $31 billion. Of the top 20 markets, Nashville had the smallest decline in transaction volume at 13%.

U.S. Commercial Real Estate Investment Volume by Market (Last 4 Quarters)
(USD Billions / % Figures Shows Change from Trailing 4 Quarters in Prior Year)

Cap rates expanded by approximately 125 to 150 basis points (bps) across all property types since early 2022, translating to a 15% to 22% decline in values based on actual transactions.

Historical Cap Rate and Forecast Across Sectors

Due to their strong fundamentals and positive long-term demand outlook, multifamily and industrial properties remained the most favored by investors. Grocery-anchored retail centers also performed well, while office investors preferred high-end Class A buildings.

After facing unprecedented challenges and spikes in costs over the past two years due to materials, labor, and margins, construction costs may moderate in 2023 as materials costs likely won’t rise. However, labor costs and margins likely will increase. Construction spending is expected to remain strong next year, driven by the record-high value of construction starts in 2022 and the $500 billion infrastructure program. Activity may slow down later in 2023 due to rising interest rates and economic slowdown, especially in the residential sector.

Annualized Construction Starts by Property Type

Commercial real estate will face a tough year in 2023 due to high-interest rates and possible recession. However, businesses are financially healthy and are expected to avoid laying off workers in a competitive labor market. Consumers are cautious but have fairly strong balance sheets with lower debt levels compared to previous recessions. These factors imply a moderate slowdown, with unemployment likely staying below 6%. Inflation is expected to fall by the second half of 2023, paving the way for lower interest rates and a new cycle that may last until the 2030s.

The real estate sector will still face rapid changes despite the economic challenges. Some buyers will be discouraged by higher capital costs, but large equity players who can invest capital fast will have opportunities. However, these investors will have a limited window: after the Great Recession, the pricing low point only lasted about six to nine months before cap rates started to shrink. The window of opportunity may be even smaller this time, as the recession is expected to be relatively short. ESG issues and the digital economy will also shape real estate demand. Hybrid work will benefit both employers and employees, but it will require adaptation from office owners and occupiers. Cities will also have to cope with new commuting habits and lower office demand.

The outlook for different sectors will vary, with data centers and industrial real estate likely to be the most resilient, followed by multifamily and retail. The office and hospitality sectors are expected to face more headwinds, and the life sciences sector should see a slowdown in activity after a COVID-induced boom. All sectors and locations will have to comply with decarbonization mandates from governments, occupiers, and investors.

Multifamily Market

Multifamily fundamentals weakened in Q1 2023 due to slow leasing, new deliveries, rising vacancies, and plateauing rents. Investment volume totaled $24.7B, a 63.7% year-over-year decrease and 25% less than the 2013-to-2019 average. Supply pressures are high but manageable, while construction debt is scarce and expensive, slowing down new starts.

Demand in the multifamily sector is expected to lag supply in the near term due to economic uncertainty, pushing vacancy toward 5%. 57 markets had vacancy rates exceeding 4.0%, up from 52 in Q4 and 43 in Q3 of 2022.

U.S. Multifamily Vacancy Rate and QoQ % Change

While the increase in vacancy rates extended across all multifamily classes, class A vacancies increased at a lower rate than class B and class C assets, which suggests that renters are not giving up their standard or living or moving to lower-cost housing despite the economic uncertainty. All three asset classes witnessed a deceleration in vacancy rate increases.

U.S. Multifamily Vacancy Rate by Class

Average monthly nationwide rent increased by 4.5% on a year-over-year basis. While this is down from the record 15.3% increase in Q1 2022, it is still well above the pre-pandemic average of 2.7%.

U.S. Multifamily Monthly Rent and YoY % Change

Multifamily rental demand continued to be high because of the difficult for-sale market, where home prices remain high and mortgage rates soared.  According to CBRE, the average monthly payment for a new home in Q3 2022 was 57% more than the average rent, the biggest difference ever recorded.  In comparison, the gap was only 8.5% before the pandemic.  The current large gap suggests that renting will remain more affordable than buying and owning, even if home prices and mortgage rates go down next year.

U.S. Multifamily Cost of Ownership vs. Cost of Renting

Multifamily sector has demonstrated solid fundamentals and an average annual total return of 9.3% over the past decade. It also has access to Fannie Mae and Freddie Mac, which are unavailable to other sectors. These factors make multifamily one of the best asset classes to hedge against inflation. As the market stabilizes, more investors and lenders are expected to capitalize on this opportunity in 2023.

Commercial Retail Market

Commercial retail saw rents increase and vacancies fall across all retail sectors in Q1 2023. Vacancy rate fell to 4.8% in Q1 2023, a record low since CBRE began tracking the market in 2005. Rent growth fell by 50 bps year-over-year to 2.0% but remained above the 10-year average of 1.7%.

U.S. Retail Vacancy Rate by Property Type

Average asking rent grew by about 2.0% in Q1 2023 from the same period in 2022 but remained above the 10-year average of 1.7%. Neighborhood, community & strip centers continued to be the strongest performers, with rent growth of 2.7% over the prior year, while lifestyle & mall, and power center rents were unchanged.

U.S. Retail Average Asking Rent

In Q1, total retail sales dropped to 5.4%. Core retail sales, which exclude nonstore retail sales, increased by 0.5% from the previous quarter to 7.7%. Nonstore retail sales, which include e-commerce, decreased by 1.2% from the last quarter to 9.8%. Both core and nonstore retail sales grew slower than a year ago, by 3.5% and 0.6%, respectively.

U.S. Consumer Retail Sales Growth and YoY% Change

U.S. Retail Sales by Category

Q1 saw muted retail space deliveries for the quarter at 5.1 million SF, with a rolling 12-month total of 26.7 million SF, the second lowest on record behind only 2022. This trend of diminished development is expected to continue, with retail construction starts for the quarter totaling 4.8 million SF.

Retail fundamentals remain strong in 2023, thanks to limited new supply and positive net absorption. Retail deliveries have hit record lows for three consecutive years, while demand for retail space has outpaced supply. As a result, rents have increased, and vacancies have decreased across most retail subtypes. Moreover, more than 50 million SF of retail space has been repurposed since 2003, with 10 million SF in the last five years alone. This trend is expected to continue in 2023 as owners of underperforming malls and centers transform their properties into mixed-use developments.

Despite the challenges of high inflation, rising interest rates, and labor shortages, retail fundamentals are expected to stay solid in 2023 as brick-and-mortar retail sales keep growing from the previous year and as the high construction costs and the limited supply of retail space continue to persist.

Data Sources： CBRE Research, CBRE Econometric Advisors, J.P. Morgan Asset Management, CoStar Realty Information Inc., Bloomberg, WSJ.com, Zillow Group, Redfin, Bureau of Labor Statistics, & U.S. Census Bureau

For additional information, please contact:
Grandway Group
Email:   Info@grandway.com
Tel:        +1 626-357-1200

U.S. commercial real estate investment volume fell by 63% year-over-year in Q4 to $128 billion. Total investment volume for the year fell by 17% from 2021 to $671 billion, which is still the second highest year in history.

In Q4, institutional and private investors were net buyers, while REITs and foreign investors were net sellers. Multifamily was the leading sector with $48 billion in transaction volume (down 70% year-overyear from 2021), followed by Industrial and logistics sector with $32 billion (down by 58% from 2021) and Office sector with $19 billion (down 66% from 2021).

U.S. Commercial Real Estate Investment Volume by Quarter
(USD Billions)

U.S. Commercial Real Estate Investment Volume by Sector
(USD Billions)

In 2022, Los Angeles was the most preferred market with total investment volume of $53 billion, followed by New York City with $51 billion and Dallas with $39 billion. Out of the 20 top markets nationwide, Nashville was the only city whose transaction volume in 2022 did not decline from the prior year.

U.S. Commercial Real Estate Investment Volume by Market (Last 4 Quarters)
(USD Billions / % Figures Shows Change from Trailing 4 Quarters in Prior Year)

Multifamily Market

U.S. multifamily investment volume in 2022 totaled $278.8 billion, down by 19% year-over-year, but was still the second largest annual volume on record.

Vacancy rate in Q4 rose 0.70% from the prior quarter to 4.6%, which is still below the long-term average of 5.0%. The increase in vacancy was likely a result of delayed household formation due to economic uncertainty, and a surge in short-term supply caused by some developers rushing to complete construction in response to rising interest rate and market uncertainty.

U.S. Multifamily Vacancy Rate and YoY % Change

Vacancy rates across all property types within multifamily sector increased in Q4 2022, however, Class C continued to have the lowest vacancy rate at 3.9% versus Class B at 4.6% and Class A at 5.1%. The vacancy rate of Class C properties (lowest cost) seems to be moving in the same direction as Class A and Class B properties (higher cost). This suggests that, at least for the time being, households seem to be willing to maintain their current standard of living rather than moving towards lower-cost housing, despite the economic uncertainty and rising mortgage rates.

U.S. Multifamily Vacancy Rate by Class

Average rent nationwide increased by 6.7% year-over-year in Q4. This is down from the record 15.2% year-over-year increase in Q1 but it is well above the historical average of 2.7% annual increase.

U.S. Multifamily Monthly Rent and YoY % Change

For the multifamily sector, Q4 marked the third consecutive quarter of negative net absorption (net balance of newly leased space minus new construction), with 100,300 newly completed units and 84,700 new leases, resulting in an estimated -15,600 units of net absorption. However, the surplus in new construction is substantially less than the prior quarter, and analysts expect the net absorption to turn positive in 2023.

New construction completed in 2022 totaled 341,200 units, which is the highest new construction volume in more than 30 years. However, data suggests that new construction starts in Q4 were down considerably as the cost of construction and the availability of financing have been negatively impacted by rising interest rates. As a result, we expect the growth rate of new supply to slow down and a shortage of supply to develop in the coming years.

Commercial Retail Market

Commercial retail sector saw its average rent increase and vacancy fall in Q4 and in 2022, primarily fueled by strong demand for retail space and a lack of new supply. Retail vacancy fell to 4.9% in Q4, driven by strong demand from retailers and a lack of supply of new spaces. Vacancy fell across the board for all sectors of retail.

U.S. Retail Vacancy Rate by Property Type

Average retail asking rent grew by 2.5% in Q4 from the same period in 2021, to finish the year 2022 at $22.78 per SQFT. Neighborhood, community, and strip centers had the strongest rent growth of 0.6% from the prior quarter and 3.0% from the prior year. Meanwhile, lifestyle and mall properties were the underperforming sector which saw its asking rents fall by 0.7% from the prior quarter but remains up 0.4% from a year ago.

U.S. Retail Average Asking Rent

Retail sales remained strong despite economic uncertainties, and sales during the holiday shopping season in Q4 were 7.6% higher than the prior year. There also seems to be a continuous return to brick-andmortar retail and a return to in-person shopping experiences by consumers, versus purely online shopping, which contributed to demand for retail space. Furthermore, a return of tourism and travel within the country also contributed to retail sales in luxury markets. All of these factors resulted in robust demand for retail spaces in Q4 and 2022 generally.

U.S. Consumer Retail Sales Growth and YoY% Change

U.S. Retail Sales by Category

Q4 was the ninth consecutive quarter of positive retail absorption, during which the net absorption (net balance of newly leased space minus new supply) was a total of 12.7 million SQFT. Approximately 5.4 million SF of new retail space was newly completed in Q4, which is substantially less than the 10-year average of 12.7 million SF. This brought the total new construction volume for 2022 to just 22 million SQFT, which is a new annual low and the third consecutive year in which new construction set a record low. Furthermore, new construction starts in Q4 fell by 40% from the prior quarter and 18% year-overyear to just 10.7 million SQFT.

Commercial retail space has demonstrated resilience in the face of shifting consumer trends from productfocused sales to in-person experiences and restaurants. Demand for physical retail space is now stronger than it was pre-pandemic while new construction volume is at a historical low. We expect the sector to show robust growth for the coming years.

Data Sources：CBRE Research, CBRE Econometric Advisors, J.P. Morgan Asset Management, CoStar Realty Information Inc., Bloomberg, WSJ.com, Zillow Group, Redfin, Bureau of Labor Statistics, & U.S. Census Bureau

For additional information, please contact:
Grandway Group
Email:   Info@grandway.com
Tel:        +1 626-357-1200

U.S. commercial real estate investment volume fell by 24% year-over-year in Q3 to $154.5 billion. Multifamily was the leading sector with $69 billion, followed by industrial and logistics with $31 billion each. Within the last 4 quarters, Los Angeles was the top market with the largest transaction volume with $66 billion, followed by New York City with $64 billion. This was a 40% increase y/y.

Construction and development cost continue to escalate, making replacement cost higher across all asset classes. This combined with higher borrowing costs for developers, is curbing the supply of new inventory generally across the board.

U.S. Commercial Real Estate Investment Volume by Quarter

U.S. Commercial Real Estate Investment Volume by Sector

U.S. Commercial Real Estate Investment Volume by Market (Last 4 Quarters)

U.S. Real Estate – Multifamily Market

Q3 was the second consecutive quarter of negative net absorption, with new units completed exceeding new units rented. Although demand is typically the strongest in Q3, renters have become more cautious this year amid growing economic uncertainty. On top of that, Q3 delivered 91,900 new units of multifamily, the highest level since the 1980s.

Vacancy rate increased to 3.9%, but is still below its long-term average of 4.9% and the pre-pandemic level of 4.1%.

New multifamily development starts has slowed, primarily due to financing issues, construction delays, and supply chain issues, while demand for rental units continue to increase. The increase was consistent across all classes of multifamily assets, with Class A at 4.5%, Class B at 4.0%, and Class C at 3.1%. The spread between Class A and C has also elevated, indicating a demand shift to lower-cost housing, as a result of economic uncertainty.

Nominal wages continue to increase as a result of ongoing inflation, making the long-term outlook for the multifamily sector favorable. Average rent increased 10.5% y/y in Q3. However the pace of rent growth is beginning to cool off, following the 14.6% y/y growth in Q2, and the 15.2% y/y growth in Q1. In addition, it is important to monitor the risk of contracting discretionary income, caused by the rising price of consumer goods and services. That being said, multifamily remains the most popular commercial real estate sector for new investments, accounting for over 45% of the total investment volume in commercial real estate.

U.S. Multifamily Vacancy Rate and YoY % Change

U.S. Multifamily Vacancy Rate by Class

U.S. Multifamily Monthly Rent and YoY % Change

U.S. Real Estate – Commercial Retail Market

Retail vacancy fell to 5.0% in Q3, with limited delivery of new spaces. Asking rents growing by 2.5% y/y. The consumer sentiment hit a record low in Q3, but retail sales remained strong. This will be important heading into the holiday season of the 4th quarter.

High construction costs have also pushed retail tenants to renew existing leases rather than search for new spaces, which often require some level of tenant improvement construction.

U.S. Consumer Retail Sales Growth and YoY% Change

U.S. Retail Sales by Category

U.S. Retail Vacancy Rate by Property Type

U.S. Retail Average Asking Rent

Data Sources: CBRE Research, CBRE Econometric Advisors, CoStar Realty Information Inc., Bloomberg, Zillow Group, Redfin

For additional information, please contact:
Grandway Group
Email:   Info@grandway.com
Tel:        +1 626-357-1200

In July, the U.S. market participants were hopeful for the possibility of interest rate cuts by the Federal Reserve in 2023, given concerns about the global slowing growth. However, such hopes vanished at August’s Jackson Hole summit of central bankers, where the Fed reaffirmed its commitment to fighting inflation. This sent stocks lower in the second half of the quarter. The Fed raised the federal funds rate by 75 basis points (bps) to 3.25% in September; the third consecutive 75bps increase. As a result, U.S. equities fell in Q3. The communication services sector, including both telecoms and media stocks, was among the weakest sectors over the quarter, along with real estate. The consumer discretionary and energy sectors proved the most resilient.

The core personal consumption expenditure index (the Fed’s preferred measure of inflation) ticked up again in August and increased, on a year-on-year (y/y) basis, from 4.7% to 4.9%. GDP data confirmed that the U.S. economy is in a “technical recession” with GDP falling by -0.6% y/y in Q2 after a -1.6% contraction in Q1. However, other data showed resilience, such as the August non-farm payrolls report that showed 315,000 new jobs added that month. Following two consecutive quarters of negative GDP growth, Q3 broke the trend and grew by a 2.9% y/y. Many believe that the uptick in GDP growth was primarily driven by an increase in export, as a result of lifting of trade restrictions with the rest of the world, while growth and inflation are still on a negative trend.

With the economy still facing challenges in multiple fronts including continued supply chain issues, labor shortages, inflation, and Ukraine/Russia geopolitical uncertainly, the key focus will be the Fed’s critical balancing between raising rates to curb inflation, versus preventing the economic growth turning into contraction.

In their September Open-Market Committee statement, the Fed announced another 75bps increase to its target rate, bringing it to 3.25%. Once again, the Fed reiterated its goal of maintaining high employment while bringing inflation rate down to 2%, and stated its intention of further rate increase.

Overall CPI inflation for the last 12 months was 8.2%, down from over 9% last quarter. Transportation and travel sectors achieved double-digit levels, while energy increases were much lower than Q2.

With another quarter of solid employment levels, by the end of Q3 the entire past 12 months are now hovering between 3.3% to 4.4%, with Q3 ending at 3.3%, as reported by the U.S. Bureau of Labor Statistics. In its October press release, the BLS reported that notable job gains occurred in leisure, hospitality, and healthcare industries, with professional services and business services sectors also growing.

After recovering some of the losses experienced in Q2 early on in the quarter, the U.S. stock market turned negative at the later half of Q3. All equity markets have now reverted back to pre-COVID levels. The sell-off was broad-based, but technology companies were hit the hardest, causing the NASDAQ to decline 1.1%.

Data Sources: CBRE Research, CBRE Econometric Advisors, CoStar Realty Information Inc., Bloomberg, Zillow Group, Redfin

For additional information, please contact:
Grandway Group
Email:   Info@grandway.com
Tel:        +1 626-357-1200