Research Brief

Consumers Are Still Spending,​
But Are Tariffs Starting to Shift Their Habits?​​

Retail Sales Remain Strong, But Slowed Down From Prior Month​

• May Inflation-adjusted headline retail sales are up 0.9% from a year ago, but they did drop 1.1% compared to last month​
• Front-running of tariffs boosted January-April figures, so May’s dip likely reflects payback rather than true weakness​

Tariff Impacts Are Beginning To Show Up In The Data​

• Building-supply, electronics and restaurant receipts have begun to soften ahead of higher input costs​
• Container rates from Asia to the West Coast rose 167% from early April through mid-June​
• As of mid-June, crude oil is up about 20% since June 1 to $75 per barrel; signals of inflation still to come​

Households Remain Resilient, Though Sentiment Lags Sales ​

• Unemployment holds at 4.2% and income growth is outpacing debt: total household debt to income ratio at 60.9%​
• Consumer savings including money market funds are up 3.6% year-over-year, giving consumers spending power, but historically low sentiment could temper outlays in H2 2025​

​Sources: Marcus & Millichap Research Services, U.S. Census Bureau​

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Tariff Impacts Still Unclear, ​
But CRE Investors Eye Long-Term Opportunities​​

Inflation and Employment Metrics Show Lagged Impact​

• Tariffs expected to raise inflation and slow hiring, but data hasn’t reflected this yet​
• May inflation and job growth remain stable, but effects may take months to show​
• help track broad trends but may not reflect individual deal realities​

Market in Wait-and-See Mode as Risks Build​

• Fed is holding rates steady amid stable but backward-looking data​
• Potential for delayed inflation as companies burn through pre-tariff inventory​
• Tariff policy remains volatile, creating short-term uncertainty​

CRE Investment May Benefit from Acting Early​

• Interest rates are a key risk factor that could make deals harder later​
• Acting now may position investors ahead of potential rate hikes​
• Long-term fundamentals remain sound despite near-term volatility​

*Through May​
Sources: Marcus & Millichap Research Services, BLS​

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Beyond the Average: ​
What Cap Rates Really Reveal About CRE Opportunities​

Average Cap Rates Offer a Benchmark, Not the Full Picture​

• National apartment cap rate averages 6%, but varies from 4.7% to 7.2% by market and asset class​
• Primary markets and Class A assets tend to command lower cap rates​
• Averages help track broad trends but may not reflect individual deal realities​

Market and Asset Type Influence Cap Rate Ranges​

• Cap rate spreads narrow across market tiers; gap between primary and tertiary markets has halved since 2018​
• Class and metro trends shape cap rate variance—e.g., hotels (6–11%), industrial (5–8.1%)​

Granular Data Reveals Strategic Investment Opportunities​

• Cap rate ranges signal where investors can find yield vs. stability​
• Outliers and micro trends offer entry points others may overlook​
• Success often comes from drilling past averages to uncover local dynamics​

As of 1Q 2025​
MT Retail = Multi-Tenant Retail​
Includes sales $1 million and greater​
Sources: Marcus & Millichap Research Services, CoStar Group, Inc., Real Capital Analytics​

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New Tax Bill Advances with CRE-Friendly Provisions​​​

Tax Bill Progresses Through Congress​

• House passed version includes key CRE provisions; Senate approval still pending​
• Changes still possible, but framework offers early insight for investors​

Key Provisions Likely to Benefit Commercial Real Estate​

• 1031 exchanges and carried interest rules left untouched​
• QBI deduction raised to 23% and made permanent​
• Bonus depreciation extended through 2029 with 100% first-year expensing​

Investors Remain Optimistic Despite Rising Distress​

• Bill may increase deficit by $2.6T to $4.3T over 10 years​
• Added Treasury issuance could pressure interest rates upward​
• Commercial real estate benefits may help offset rate impact, especially for value-add deals​

*As of May 28​
Sources: Marcus & Millichap Research Services, Internal Revenue Code §164(b)(6); House-passed American Growth & Opportunity Act, Sec. 11004 (BPC summary 5/22/25)​

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• 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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