(TNND) — Commercial real estate “continues its recovery journey” despite headwinds from tariffs, geopolitical conflicts and other uncertainties, according to Henry Chin, CBRE’s global head of research.
CBRE, the world’s largest commercial real estate services and investment firm, released its midyear commercial real estate outlook.
Commercial real estate investment activity should increase 10% this year, including a gain of nearly 20% in office-property sales.
“We believe that the U.S. office market is past its trough,” Chin said via email. “We see rental growth this year in 46 out of 64 U.S. office markets that CBRE tracks.”
The report covers various types of commercial real estate, including industrial spaces, stores and apartment buildings.
CBRE said the market fundamentals remain stable. And the recently passed “One Big Beautiful Bill Act” maintains favorable tax treatment for real estate.
But CBRE lowered its forecast for overall rent growth and its forecast for overall economic growth in light of what it said was “erratic U.S. trade policy, geopolitical uncertainty and risks associated with large, ongoing deficit spending.”
Those factors have tempered business and consumer confidence as we head into the second half of the year, CBRE said.
CBRE lowered its forecast for annual gross domestic product growth to 1.5% from between 2% and 2.5% in January.
Second-quarter GDP was reported this week at 3%, which beat expectations and marked a rebound from a 0.5% first-quarter drop. But experts told The National News Desk that the dramatic swings between import activity skewed the quarterly figures.
Bankrate Financial Analyst Stephen Kates said retailers tried to buffer themselves from the impact of tariffs by pulling forward imports as much as possible. That took place in the first quarter, while the second quarter saw the largest quarter-to-quarter drop in imports since the second quarter of 2020.
Consumer sentiment cratered in April as President Donald Trump unveiled a slew of country-specific “liberation day” reciprocal tariffs.
Consumer sentiment has rebounded somewhat since April, as economic pollsters said Americans have grown less fearful of the worst-possible inflation outcome from tariffs.
But the tariff situation is far from settled.
Trump has secured a handful of trade deals, including ones with the European Union and Japan. He’s maintained higher tariffs on China, Canada and Mexico. And the White House just announced a fresh round of reciprocal tariffs on countries that take effect in a week.
The Budget Lab at Yale says Americans face an overall average effective tariff rate of 18.3%, the highest since 1934.
Job growth has also slowed since the April tariff announcements.
Uncertainty about future tariff rates has chilled business sentiment, CBRE said in its midyear outlook.
Still, CBRE is expecting strong demand for the best office and retail space in the best locations.
OFFICE MARKET
Office leasing demand is coming from the finance, legal, insurance and technology sectors.
Availability of prime office space, the best buildings in each market, is declining.
And, even though the country is still hovering near an all-time high office vacancy rate of 19%, a 13-year low in office construction completions, coupled with high levels of office conversions and demolitions, are clearing the market of unwanted space.
By the end of the year, 23.3 million square feet of office space is set to be converted or torn down.
Old offices are being given new life as apartments, hotels, science labs, shops and more.
Most office occupiers have also found an equilibrium with their remote work policies.
Remote and hybrid working arrangements remain overwhelmingly popular with people, a recent Gallup survey showed.
Jim Harter, the chief scientist for Workplace Management and Well-being at Gallup, told TNND that people learned about a lot of autonomy while working remotely during the pandemic.
But he also said physical distance leads to psychological distance for employees, so companies are working to strike the right balance.
CBRE’s occupier sentiment surveys have found more companies are planning to maintain or even expand their office portfolios.
CBRE found that 60% of organizations want employees to work in the office three or more days per week, but only 51% of employees are in the office that frequently.
RETAIL MARKET
Chin said the retail segment should’ve been the hardest hit amid policy uncertainties out of Washington, but thanks to a decade of curtailed retail construction, the sector’s availability remains tight in prime locations.
Retailers, like office tenants, are focused on high-quality spaces.
The overall retail availability rate increased slightly to 4.9% at midyear, reflecting limited new supply, according to CBRE.
Store closures from bankruptcies have released some lease space onto the market, but much of that is concentrated in underperforming suburban or mall-adjacent areas, CBRE said.
“Retailers are showing a strong preference on high traffic, open-air centers in populated markets,” Chin said. “We also expect to see power centers perform well. Value-oriented retailers continue to expand and the performance of luxury brands remains solid.”
APARTMENT BUILDINGS & INDUSTRIAL SPACE
How is multifamily housing faring amid a tough market for homebuyers?
After all, the typical home price nationwide has increased a whopping 48% in the last five years, according to historic data from the National Association of Realtors. And high mortgage rates have kept both buyers and sellers on the sidelines.
Despite the headwinds for homeownership, Chin said rental growth in the multifamily market has bottomed out.
The cost of buying properties is still higher than renting, given the relatively high cost to finance purchases, he said.
The Midwest and Pacific Northwest are leading the multifamily sector’s growth, Chin said.
Zillow reports that the typical rent is down about $50 a month compared to last year.
Mirroring trends seen in the office and retail spaces, CBRE said the industrial sector will continue to see a flight to quality.
Industrial and logistics leasing activity will be on par with last year, CBRE said. Demand is coming from third-party logistics providers and e-commerce companies, among others.
Economic uncertainty and potentially higher materials costs due to tariffs could limit construction completions in the industrial sector through the next couple of years, CBRE said.