Moody’s CMBS view of CRE markets, with its red-yellow-green traffic light symbolism is once again lighting up U.S. property markets as of the end of 2023.
They use data from CBRE Econometric Advisors, sometimes additional information, and score on a 0 to 100 scale. Red, which means under stress, is 0 to 33 and indicates a tenants’ market. Yellow, on the edge of imbalance, is 34 to 66. Green, where demand outpaces growth in supply, is 67 to 100 and a landlords’ market.
The overall score of 59, which would be a solid yellow, was the same as the third quarter. “Retail had the highest score (Green 86), followed by multifamily (Green 75), industrial (Yellow 59), hotel (Yellow 39), CBD office (Yellow 36) and suburban office (Yellow 34),” Moody’s wrote.
New supply and low vacancy rates kept retail where it was at 86, “its highest level since the inception of the data series.” Out of 69 markets, 1 was in yellow and the remainder were in green.
Multifamily was up three points from 72 to 75 in the last quarter, “driven by higher forecast demand and slightly lower forecast supply, though the vacancy rate increased 30 basis points to 5.4%.” But a lower forecast supply seems at odds with data from RealPage projecting that unit deliveries will top last year’s — itself a record — by 50% in 2024. There were 69 markets: 1 in red, 18 in yellow, and 50 in green.
Moody’s said that industrial saw its score decline to 59 from 63. That was the seventh consecutive quarter with a drop. New levels of supply have increased the national vacancy rate to 7.1%. Industrial saw eight markets out of 59 in red, 37 in yellow, and 30 in green.
Hotel post-pandemic recovery slowed its pace, “with revenue per available room (RevPAR) growth rates returning to sustainable levels but remaining below the baseline RevPAR target.” But it was up one point from 38 to 39. There were 65 markets, 22 in red, 36 in yellow, and 7 in green.
Office continued to be hit by more sublet space, negative absorption, and expectations that more occupiers will be cutting back on the space they take. Central business district offices dropped a point from 37 to 36, bringing it closer to the red category, with vacancy rates going from 18.6% in the third quarter of 2023 to 18.9% in the last quarter. Suburban office stuck at 34. CBD office had 58 markets with 21 in red, 31 in yellow, and 6 in green. Suburban office has 63 markets: 18 in red, 39 in yellow, and 6 in green.
Source: “Retail, Multifamily Still Landlords’ Markets in This Analysis“
