Company: MMI
Filing Date: 2025-08-07
Form Type: 10-Q
Source: 0001578732-25-000040
Chunk: 146

Company: Marcus & Millichap, Inc.
Filing Date: 2025-08-07
Form: 10-Q
Item: Part I, Item 2
Chunk 146
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Commercial Real Estate Supply and Demand 

Our business is dependent on the willingness of investors to invest in or 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 apartment and industrial construction remains elevated, the supply additions are concentrated in select markets and the pace of deliveries is tapering. Oversupply risks in most markets are beginning to diminish as elevated capital costs join rising tariffs on building materials and construction labor shortages to drive construction costs higher. Retail and office development was already low entering 2025, with little sign of a revival. Apartment starts have fallen by 77% 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 in 2025 should aid commercial real estate performance in the coming quarters.

The commercial real estate space demand outlook for 2025 remains uncertain. Core drivers including job creation, retail sales and modest gains in office attendance through the second quarter of 2025 suggest positive momentum, but the broader economic climate could impact the trajectory either positively or negatively. If the U.S. economy enters a recession, space demand for all types of commercial real estate could be negatively impacted. However, if a trade war is averted, tariffs stabilize and sentiment increases, space demand could be bolstered.

Although space demand for apartments and office space remain positive, sectors facing increased trade and tariff risk have experienced slackening demand. Retail space absorption has been modestly negative for two consecutive quarters and industrial space demand turned negative in the second quarter. Although uncertainty surrounding trade policy has impacted retail and industrial space demand, if additional trade deals are negotiated and if tariffs are stabilized, space demand could quickly recover.

Apartment vacancy rates continued to trend lower in the second quarter, reaching 4.4% with unit absorption totaling 790,000 units in the trailing 12 months – the strongest 12-month total in more than 30 years. If the pace of construction is further slowed by tariffs on construction materials and more stringent immigration policy reducing the available construction labor force, new supply risks would continue to abate, raising the prospect of strengthening multifamily fundamentals. Office demand has likewise continued to improve, marking a fifth consecutive quarter of positive space absorption. Though vacancy rates remain elevated for the