Asking about the commercial real estate market is akin to asking about the weather. It’s not pointless, but the answer is about as likely to be accurate (or inaccurate) as the 14-day forecast.

In my line of work, I’m often asked to weigh in on the state of the CRE market. It’s a common question and one that deserves a thoughtful answer. To provide that, however, one would have to consider the location and the activity in mind. (See the similarities to the weather?)

SUNNY WITH A CHANCE OF RECESSION?

Absent significant market disruption/collapse (always a possibility – think COVID, disruptive policy and geopolitical events)  inflationary forces, especially in the Carolinas and southeast, coupled with historically sensible interest rates, continue to be the main market themes. We do seem to see rents stalling out a bit, or at lease moderating in their increase. Vacancies are tracking toward “typical” for most asset classes (see chart).  Perhaps “reversion to the mean” is a good term to describe what we are now seeing in most parts of the CRE market in our region. Not euphoric, not depressed, generally balanced. Given the latest gyrations of the stock market and recession fears on the horizon, I continue to have conviction in CRE as an investment strategy, especially in the Carolinas and southeast.

Let’s remember a few things: 

• Net migration: Come on down y’all (note graphic). They say ‘revenue cures all ills’ in business. Population growth is, with some caveats, similar for your local CRE market. This bodes well for the southeast and South Carolina in particular.
• Governmental impacts – tariffs, deportation, continued government spending, debt and/or tax relief all affect business and the almighty consumer. This impacts CRE, often industrial or retail first, which along with employment, trickles into our other asset classes. Immigration and monetary policy affect construction pricing and development pipeline which impact supply/demand dynamics.
• Manufacturing – According to our own Andreas Heinzelmann, a German native specializing in industrial user services, international, particularly European, companies maintain high interest in establishing US operations. Our US business climate and uncertainty, tariffs and all, continues to be more attractive than that of Europe. The US, and often the southeast, compares favorably with Europe in consumer demand, utility costs, and ease of permitting, to name a few.