Analyzing Retail and Multifamily Markets

Moody’s CMBS (Commercial Mortgage-Backed Securities) view of Commercial Real Estate (CRE) markets offers a comprehensive analysis using a red-yellow-green traffic light symbolism. This symbolism categorizes markets based on their performance and indicates whether they favor tenants or landlords. As of the end of 2023, Moody’s latest assessment illuminates the current state of U.S. property markets.

Utilizing data from CBRE Econometric Advisors, supplemented with additional information, Moody’s scores markets on a scale of 0 to 100. A score of 0 to 33 represents a tenants’ market (red), 34 to 66 indicates a market on the edge of imbalance (yellow), and 67 to 100 signifies a landlords’ market (green).

In this latest analysis, the overall score stands at 59, a solid yellow, consistent with the previous quarter. Retail emerged as the top performer with a green score of 86, closely followed by multifamily at 75, industrial at 59, hotel at 39, CBD office at 36, and suburban office at 34.

The retail sector maintained its strength, boasting its highest score (86) since the inception of the data series. New supply combined with low vacancy rates contributed to its resilience, with only 1 out of 69 markets falling in the yellow category.

Multifamily experienced a slight increase, climbing from 72 to 75 in the last quarter. Despite higher forecast demand and slightly lower forecast supply, the vacancy rate rose to 5.4%. However, projections suggest a significant increase in unit deliveries for 2024, which may challenge this positive trend.

Industrial, on the other hand, witnessed a decline in its score to 59 from 63, marking the seventh consecutive quarter of decrease. Increased supply levels led to a national vacancy rate of 7.1%, with eight markets categorized as red, 37 as yellow, and 30 as green out of 59 markets analyzed.

The hotel sector saw a modest improvement, with its score rising from 38 to 39. However, post-pandemic recovery remains sluggish, with revenue per available room (RevPAR) growth rates still below the baseline target. Out of 65 markets, 22 were classified as red, 36 as yellow, and 7 as green.

The office sector continued to face challenges, particularly with the rise in sublet space and negative absorption. Central business district (CBD) offices witnessed a slight drop in their score to 36, inching closer to the red category, while suburban offices remained stagnant at 34. With 58 markets analyzed for CBD offices, 21 were in the red, 31 in the yellow, and 6 in the green category. Suburban offices encompassed 63 markets, with 18 in red, 39 in yellow, and 6 in green.

In conclusion, the latest analysis from Moody’s CMBS view offers valuable insights into the performance of various CRE markets. While retail and multifamily sectors continue to thrive as landlords’ markets, others such as industrial, hotel, and office sectors face ongoing challenges amidst changing market dynamics.

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