Company: MMI
Filing Date: 2025-11-07
Form Type: 10-Q
Source: 0001628280-25-050707
Chunk: 124

Company: Marcus & Millichap, Inc.
Filing Date: 2025-11-07
Form: 10-Q
Item: Part I, Item 8
Chunk 124
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 sell commercial real estate, which is affected by many factors beyond our control. These factors include the supply of commercial real estate, coupled with user demand for these properties, and the performance of real estate assets, when compared with other investment alternatives, such as stocks and bonds.

Although the pace of apartment and industrial construction has begun to abate, markets where the new additions were concentrated, predominantly in the Sun Belt, continue to face an overhang of inventory that is affecting fundamentals. Markets with limited new supply continue to generate modest performance gains. Oversupply risks are beginning to diminish as elevated capital costs join rising tariffs on building materials and construction labor shortages to increase construction costs. Retail and office development was already low entering 2025, with little sign of a revival. Apartment starts have fallen by 76% from their peak in 2022, and industrial completions in 2025 are expected to fall to approximately 250 million square feet, their lowest level since 2015. As a result, receding new supply risks should aid commercial real estate performance in the coming quarters.

While many Sun Belt markets face multifamily oversupply challenges, other metropolitan areas experienced only modest vacancy rate increases. Nationally, the vacancy rate increased 20 basis points to 4.6%, with unit absorption thinning to just 57,000 units in the third quarter. This follows the strongest 12-month total in more than 30 years which ended in the second quarter of 2025. Office demand has continued to improve, achieving a sixth consecutive quarter of positive space absorption. Though vacancy rates remain elevated for the sector as a whole, select sub-segments of office properties in a variety of markets continue to draw tenant demand. Retail space demand was positive in the third quarter, sustaining a vacancy rate below 5% led by neighborhood and community retail centers which maintained vacancy rates near 4%. Hotel demand remains down from last year as international travel to the United States has been impacted by trade policies. In addition, elevated uncertainty and weakened consumer confidence have impacted leisure travel. Should trade deals be established and policies normalized, confidence could improve and hotel room demand could quickly revive.

The commercial real estate space demand outlook remains difficult to discern amid the dramatic policy shifts enacted by the U.S. presidential administration and the limited data available due to the government shutdown. Increased uncertainty, weakened sentiment and risks of a recession and higher inflation could slow decision making, causing commercial real estate space demand to falter. If policy clarity emerges, commercial real estate space demand could be reinvigorated.