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Commercial Real Estate Market Insights

Intro Text
The original "October 2023 Commercial Real Estate Market Insights" by the National Association of REALTORS® Research Group.

The National Association of REALTORS® summary is extracted from this body of research.

Multifamily Properties

With mortgage rates above 7.5% the Multifamily segment is witnessing a resurgence of demand for apartments after slowing down for nearly a year.

The net absorption over the last 12 months has risen significantly by 33% compared to the preceding year.  

This has encouraged construction firms to increase unit deliveries by 17% compared to the same time frame a year earlier.

Challenges like overbuilding and the resistance to the sector to immediate change have pushed vacancy rates to an unprecedented 7%, subsequently reducing rent growth to 0.8%. 

Nonetheless, the multifamily sector is anticipated to remain above the pre-pandemic levels, driven by favorable demographics and a robust job market fostering household establishment. 

Industrial & Warehouse

Rent prices in the industrial segment of commercial real estate continue to expand, through the pace of the rent growth has decelerated to 7.5% in the third quarter of 2023.

Despite this, it's still above pre-pandemic figures and is the most robust growth among all commercial real estate sectors. Conversely, with a 43% increase in square footage delivered over the past year in the industrial real estate market, both vacancy rates and net absorption have moderated back to pre-pandemic standards. 

Retail Properties

The retail sector of commercial real estate has further decreased its vacancy rate to a 10-year low of 4.1% in September, and it remains the lowest among all sectors

Furthermore, although the rent growth rate has eased, it remains above the pre-pandemic levels. Despite higher prices, consumer spending remains strong. 

As a result, this sector continues to perform better than before COVID -19. 

Office Properties

Despite some employers mandating in-person work and the decline of remote jobs, the office sector is still facing challenges. 

The downward trend of office space demand has continued throughout the last year, resulting in a record-high vacancy rate of 13.3% compared to the previous year's 12.2%.

The future of the traditional office space is unclear due to the ongoing impact of COVID-19, with many business adopting hybrid work arrangements that allow for a mix of in-person and remote work. However, office spaces have gained popularity among AI-driven companies looking to accommodate their staff amid the sudden surge in AI demand. 

Hotel/Motel Properties

For the past seven months, the hospitality sector's revenues have stabilized near $97, reflecting a 13% increase from the pre-pandemic levels. 

Although the average daily rate has remained consistent over the last four months and stands 17% above pre-pandemic figures, the occupancy rate lags, still trailing nearly 3% behind its pre-coronavirus state. 

These trends suggest that while the hospitality sector has yet to recover from the COVID-19 impact fully, it is certainly on a promising trajectory towards recovery.

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