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Marcus & Millichap’s John Chang discusses the construction pipeline across the four main real estate sectors

Keeping an Eye on CRE Supply

Demand drivers are important when making commercial real estate development and investment decisions. However, according to Marcus & Millchap’s John Chang, demand is only part of the situation. In a recently released video, Chang pointed out that supply, especially new supply, is also an important metric in making the right decisions.

Chang focused on supply in the four main real estate sectors:

Office: Less and Less

Marcus & Millichap forecasts about 67 million square feet of new office space to be delivered in 2024. Chang said this might seem a lot, especially given the close to 18% vacancy rate. However, “construction is roughly half the level we saw in the early 2000s, and I think the majority of the pipeline is build-to-suit, mostly in suburban areas,” Chang said.

Retail: Thin Supply

Retail is another sector with a sluggish pipeline; Marcus & Millichap reported that approximately 40 million square feet are expected to be delivered this year. This is about 75% below the early 2000s’ construction pace. “Retail has been down significantly since the Global Financial crisis, and that’s part of why the retail sector is outperforming, with a forecast vacancy of 4.8% in 2024,” Chang said.

Industrial: More Space, Higher Vacancy

The opposite of retail is industrial, adding square footage at an astounding clip. Marcus & Millichap predicts that 360 million square feet of industrial will be delivered in 2024, upping the vacancy to about 6.1%.

Multifamily: A New Record

New apartment construction is anticipated to add approximately 480,000 new units in 2024, which will set a new record. Chang anticipated this supply would boost vacancy rates to about 6.1%, suggesting “a very solid level of net absorption this year.” Multifamily will be aided by the fact that the United States continues to face a housing shortage while homeownership costs are out of reach for most people.

Chang said that completions will outpace absorption in 2024, but “the apartment construction pipeline thins pretty significantly in 2025 and beyond,” meaning demand will again outpace supply.

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Marcus & Millichap's John Chang

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