Lee & Associates CEO Jeffrey Rinkov Sees Rising Demand Across Sectors

Lee & Associates’ 2024 Q2 North America Market Report charts some differences between the U.S. and Canada–a more robust multifamily market in the U.S. and steadier demand for office north of the border–along with common themes in both countries as we head toward the closing months of 2024. Connect CRE sounded out Westlake Village, CA-based CEO Jeffrey Rinkov to discuss the high-level themes he and his team are emphasizing.

Q: The U.S. industrial market experienced a substantial year-over-year contraction in absorption for the first half of 2024. Looking at the U.S. as a whole, and acknowledging that local market conditions may vary widely, is the decline in net absorption due more to increasing inventory or decreasing tenant demand?  

A: The U.S. industrial market and the relative contraction in that absorption is a function of flattening demand and the delivery of new inventory. While demand does remain very robust in certain areas of the U.S. and Canada, vacancy rates have continued to head upward predominantly due to new building deliveries. Much of the industrial product being delivered today was in the planning stages during Covid and the severe supply chain disruption that occurred. Most recently, there are signs that demand is increasing, and corporate site selection is on the upswing.

Q: Canada’s office market appears to be on steady ground compared to the U.S. What accounts for the stronger performance north of the border? 

A: The Canadian office market has been a steady and strong performer for a couple of reasons. The Canadian government intervened and provided tremendous support for occupiers which allowed them to remain in their offices and required in office attendance by workers. The Canadian government provided significant financial support to businesses which allowed them to keep up with lease payments and retain employees, which intern sustained demand for office space. In Canada, there is a stronger cultural preference for in office work compared to the US where the shift has been to hybrid workplace strategies.

Q: Compared to industrial, rising demand for retail space hasn’t led to an increase in new construction. Why is this, and are there signs that we may see more retail development in the near future?  

A: The demand for retail space has a been a consistent and impressive theme in commercial real estate. Beyond the Covid period, we have seen consumers with a large appetite for in-person shopping and experiential retail opportunities. Based upon the low vacancy rates and accelerating rental rates, we would expect to see more retail development in the near future and beyond. Some of this retail demand is evidenced in the high and accelerating volumes of business and vacation travel and the success in of the hospitality sector. 

Q: Do you anticipate apartment rent growth nationally will eventually return to pre-pandemic norms? 

A: Multifamily rates appear to be gaining stability and advancement every quarter. As employees are being required to return to work, core multifamily is seeing reduced vacancy rates, decreases in tenant inducements, and the beginning signs of rent growth.  Multifamily rates appear to be gaining stability and advancement every quarter. As employees are being required to return to work, urban core multifamily is seeing reduced vacancy rates, decreases in tenant inducements, and the beginning signs of rent growth. 

Q: Regardless of property type or market, what are the key themes that Lee & Associates brokerage professionals are emphasizing to clients in 2024?  

A: Currently, our professionals are seeing a number of themes that are very creative to our commercial real estate clients. The prospect for lower interest rates in the near term is giving encouragement to an increase volume of sale transactions and a diminished gap between buyer and seller expectations. We are seeing great demand for data center assets from both occupiers and investors as well as high demand for cold storage capacity. we continue to see great interest in retail assets, and we have even seen some elements of increased occupier demand for office.