Market Summary 8.4.25

Commercial Real Estate Space Demand in 2Q

Commercial real estate demand is showing signs of sector-specific recovery, according to Marcus & Millichap’s latest second-quarter update. While the overall CRE landscape remains uneven, new demand patterns are emerging—particularly in industrial, multifamily, and necessity-driven retail. These sectors continue to attract tenant interest and investor capital due to their resilient fundamentals and essential-service alignment. Industrial, bolstered by e-commerce and logistics needs, remains a standout performer, with low vacancy and stable rent growth in key distribution hubs. Meanwhile, multifamily demand is holding firm, with affordability challenges in the for-sale housing market continuing to funnel households into rentals.

In contrast, the office sector continues to struggle with elevated vacancy and muted leasing activity, especially in oversupplied or suburban markets. However, some urban submarkets with tech and healthcare-driven employment are seeing early signs of stabilization. Retail is undergoing a quiet reinvention—grocery-anchored centers and mixed-use projects with experiential components are outperforming, while discretionary and fashion retail lag. Across the board, lease structures are shifting in favor of tenants, with longer concessions and slower rent escalations now the norm.

Capital markets remain tight, but investor interest is recalibrating rather than retreating. Cap rates in industrial and multifamily have risen slightly from their lows but still offer attractive spread relative to other asset classes. The current cycle is rewarding investors who prioritize durable demand, efficient scale, and long-term growth corridors. With supply pipelines thinning and new construction slowing dramatically, existing assets in strong locations are poised to benefit from constrained competition. For those willing to take a thematic, forward-looking approach, this stage of the cycle presents a window of opportunity to secure high-performing assets before broad sentiment fully rebounds.