Last week, Amia attended the annual CCIM conference, which was hosted in Seattle this year. Here is a summary of CCIM economic update:

The past three years has been a period of economic extremes. During the pandemic, we saw the unprecedented injection of policy stimulus, which led to a huge shift in consumer spending. Such strong consumer demand strained global supply chains, causing the price of goods to increase sharply, followed thereafter by a tightening of monetary policy, which is where we find ourselves today.

In 2024, however, economists show that global inflation will be half the rate that it was in 2022 and oil prices are likely to drop. While interest rates have nearly doubled and an economic recession seemed inevitable, everyone is now waiting on The Fed to see if a recession will in fact occur. Recessions have three main components: if consumers lose faith in job security and curtail spending; if businesses lose faith in the market and cut their payroll and expenses, and if banks lose faith in lending payback and raise rates. Currently, we are seeing an economic slowdown as extra savings is running out, delinquency rates are starting to rise and consumer spending declines. Contributors to the sluggish economy are the auto workers strike, student tuition, a spike in the cost of oil, and potential government shut downs.

This complex economic climate has impacted the commercial real estate market in the following ways:


This sector has seen a negative absorption of vacancy, though many businesses are now reconsidering the flexible remote working versus traditional in-person office model. Remote work not only can impact business productivity but is also impacting cities, taxes, restaurants and other businesses that supported the in-person office workforce. These impacts are being seen as leases are coming up for renewal. Office users are gravitating towards higher-class office but taking a smaller footprint. Economists anticipate that vacancy will continue to climb for the next 2-3 years but that 2026 will be the end of the ‘flex work’ model. 


During 2021-2022, the demand for industrial space was very strong, and we saw increasing rent rates. We are now seeing absorption in this sector to normal, with regional vacancy rates between 4-8%. On the west coast, industrial vacancy rates are around 4% on average. Rent escalations are starting to slow along with the rate of industrial development. An emerging trend in the industrial sector is that many businesses are moving south where they have less overhead with the reduced rental rates and cost of living.


Vacancies in this sector have declined primarily because there has been no new development due to the uncertainty of retail that began in the years preceding the pandemic. Over time, with little new retail being built, existing vacancy is being absorbed. We continue to see mall vacancy increasing, but shopping center vacancies are decreasing. Interestingly, 48% of retailers report that they plan to expand in the next five years with both their online presence as well as brick and mortar.

In conclusion, we are likely at the bottom of this economic slump as cap rates are flattening out and buyers and sellers are beginning to adjust their expectations. The area of biggest exposure will be multi-family investments as loans begin to mature. Higher interest rates along with the cost of refinancing may result in more distressed properties. Uninvested capital is currently at a record high as everyone waits on the Fed, but it is anticipated that the ‘floodgates will open’ in Q2 of 2024.