Archives for May 2025

• Federal budget & policies to play pivotal role in interest rate outlook
• Market forces may place upward pressure on interest rates
• Why now may be the time for investor action

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CRE Distress Edges Higher, But Investment Activity Holds​​

Current Distress Trends in Commercial Real Estate​

• The overall delinquency is up 50 bps year-to-date and 200 bps from a year prior​
• Overall delinquency is at 7.0% as of April 2025​

Delinquency Rates Vary By Sector and Region​

• Office delinquency rates are elevated at 10.3%, but below recent 2024 peak of 11.0%​
• Lodging and Retail delinquency rates have risen to 7.9% and 7.1% respectively while industrial remains the lowest at 0.5% ​
• Apartment delinquency rate rises to 6.6%, but much of the distress is focused amongst Sun Belt markets​

Investors Remain Optimistic Despite Rising Distress​

• Transaction activity is up 30% year-over-year through 1Q 2025​
• Strong fundamentals continue to drive investment, despite a time of higher interest rates​

*Through April​
For loans 30+ days delinquent ​
Sources: Marcus & Millichap Research Services, Trepp ​

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Office Real Estate Finds Footing​

Office Sector Slowly Rebounding After Pandemic Shock​

• Office vacancy rose from 12.3% before the pandemic to a peak of 17.2% in Q1 2024​
• Positive absorption returned over the last 4 quarters, bringing vacancy down to 16.7%​

Performance Varies Sharply by Market and Property Type​

• Urban vacancy is 19.2%, while suburban is 16% — but small, newer suburban offices average just 11.2%​
• Markets like Dallas, Charlotte, NYC, and Chicago have posted multiple quarters of positive office absorption​
• Struggling markets include San Francisco (27% vacancy) and Boston, with ongoing negative demand​

Outlook Uncertain, but Construction is Low​

• Limited construction and return-to-office trends could support further improvement​
• Rising unemployment may paradoxically lift office demand in 2025​

* Through 1Q​
Sources: Marcus & Millichap Research Services, CoStar Group, Inc.​​

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Retail Fundamentals Hold Firm ​Amid Trade and Economic Uncertainty​

Retail Fundamentals Softened Slightly in Early 2025​

• Vacancy rate ticked up 10 basis points to 4.5%​
• Retail absorption slipped negative by 4.7 million square feet in the first quarter of 2025​
• Some expansion plans remain, but momentum faces new headwinds​

Tariffs and Trade Uncertainty Create New Retail Challenges​

• Retailers sourcing heavily from China face the greatest tariff impacts​
• Tenant mix will be critical to mitigating tariff-related risks​

Long-Term Retail Outlook Remains Positive​

• Limited retail construction will curb new supply pressure​
• Millennials entering peak earning and spending years support demand​
• Retail cap rates in the upper-6% range offer potential for positive leverage​

* Through 1Q​
Sources: Marcus & Millichap Research Services, CoStar Group, Inc.​​

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