Your Guide To The Evolving Commercial Market, First Quarter

Commercial Real Estate Market Recap

Leasing Activity:

In the first quarter of 2024, leasing activity remained robust. Which totaled 128.7 million SF of transactions, surpassing the 10-year pre-pandemic average by 3%. Leading markets included the Inland Empire, Dallas/Ft. Worth, and Houston. Notably, there was a significant increase in large deals of 1 msf or greater, with 15 such leases transacted, 10 of which were from e-commerce occupiers. However, larger deals are taking longer to finalize due to cost containment measures and a slowdown in consumer demand for goods.

Absorption:

Tenant demand slowed in the first quarter, down from the previous quarter and the same period last year. Despite this, there were several bright spots, with eight markets posting more than 1 msf of quarterly net occupancy gains. Healthy new supply totals in markets like Houston, Savannah, Chicago, and Austin contributed to positive absorption. However, there were also markets where negative absorption was recorded, largely due to occupiers shedding space as they anticipate slowing demand.

Vacancy:

The overall vacancy rate rose by 60 basis points to 5.8%, marking the fifth consecutive quarter of increase driven by new speculative supply. Despite this, the vacancy rate remains below the 10-year pre-pandemic average. The Midwest boasted the tightest vacancy rate, while the South recorded the highest rate due to concentrated new supply. Sublease vacancy rates increased slightly, but vacant sublet space showed signs of plateauing.

Overall, while there are some challenges such as slowing demand and increasing vacancy rates, the commercial real estate market continues to demonstrate resilience and adaptability in the face of economic uncertainties.

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