CRE Fundamentals Stay Strong Even as Economic Concerns Loom
CRE sectors across the country remain resilient with strong fundamental underpinnings despite near-term concerns about the economy and tariff policy, according to Crexi’s national CRE report for May 2025.
Retail landlords remain cautious as the sector reacts to proposed tariffs that were announced and delayed in April. Many larger retailers have adjusted sourcing strategies to mitigate increased costs, but smaller retailers face heightened pressure, and landlords are balancing tenant stability with proactive leasing strategies to manage potential vacancy risk, said the report.
Retailers that heavily rely on Chinese imports, including the toy and apparel industries, are experiencing significant disruptions, prompting shifts in both inventory management and supply chain strategies. These shifts could reshape retail footprints and real estate needs going forward, said Crexi.
Retail absorption was 1.16% in May, a moderate slowdown from previous months, suggesting tenants may be reconsidering expansion or relocation plans amid economic uncertainty.
Meanwhile, office market dynamics are gradually stabilizing, although national vacancy levels remain high, Crexi said. Companies that have committed to hybrid work models are seeking smaller, high-quality spaces, but secondary markets face ongoing challenges related to a slow return-to-office pace. This has led to more generous concessions, and several strategies are emerging in the office market in response to evolving work patterns, including flexible leasing options, increased amenities, and hybrid-friendly configurations.
Office properties saw a median sale price of $167.06 per square foot, representing an 8.81% annual increase and signaling ongoing investor confidence in higher-quality office assets, said Crexi. Lease asking prices were $19.97 per square foot annually in May, with effective rates averaging $18.50 per square foot, a widening gap that reflects landlords’ increased efforts to attract tenants by offering more substantial incentives.
The industrial sector continues to face pressure from rising construction costs and tariff uncertainty. Reshoring activities and an increasing need for supply chain resilience, however, will continue to sustain strong fundamentals, said the report.
“Markets near major logistics hubs and transportation corridors remain particularly competitive, maintaining steady leasing activity and investor interest,” said the report.
Industrial properties logged a median sale price of $104.40 per square foot, reflecting a year-over-year increase of 7.29%. This demonstrates persistent demand driven by the logistics and e-commerce sectors, though growth has moderated slightly from earlier peaks as operators pause expansion plans amid tariff-related uncertainty, said Crexi.
Industrial asking lease rates averaged $14.10 per square foot, while effective rates were lower at $12.05 per square foot. This widening gap reflects landlords’ increased negotiation flexibility, driven by tenant cost sensitivity and a moderate uptick in speculative supply, the report said.
Finally, the multifamily market remains resilient, with investors favoring affordable and workforce housing. Supply peaks continue to lead to elevated vacancies in some markets, but the report said underlying demand fundamentals are strong. Multifamily investors are placing greater emphasis on operational efficiencies and value-add strategies to navigate increased financing costs and market volatility.
Source: GlobeSt/ALM