National-level commercial real estate insights risk overlooking local nuances relevant to investors, said John Chang, chief intelligence and analytics officer at Marcus & Millichap. He encouraged investors to look beyond headline data and analyze local trends.
Strong economic growth in a metro does not always correlate with strong rent growth, especially when overbuilding occurs, he said. U.S. average apartment rent increased by 1.2% compared to the 2022-2024 average. But on a metro level, Chicago's went up 6.3%, Milwaukee's grew 5.3%, Cincinnati's rose 5.1%, Cleveland was up 2.9% and Kansas City saw a 2.67% increase. All of these metros saw less economic gains but also limited new construction, according to Chang.
Other metros experienced rent declines amid higher construction activity. They include Austin, which fell 7.4%, Phoenix, down 3.9% and Atlanta, down 3.7%. Chang said these metros have positive long-term prospects but currently face a supply overhang.
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“Even though the Sun Belt metros had the strongest economic growth profiles, they still face unique local performance headwinds,” said Chang. “Meanwhile, markets in the Midwest that didn't have outsized economic growth still performed quite well over the last few years. That reiterates the need for investors to look past the headlines and drill down into local market trends as they define their investment strategies.”
In the multi-tenant retail sector, national average rents rose by 3.6% compared with the prior three-year average, with limited new construction generally favoring growth markets, according to Chang. Top-performing metros are New York City, with a strong post-pandemic revival, followed by Miami, Las Vegas, Charlotte, Northern New Jersey and Salt Lake City.
Meanwhile, office rents increased modestly, by about 0.75%, compared to the prior three-year average.
“The top performing office markets are particularly interesting,” said Chang. “Most people think office rents have cratered.”
But Boston office rents rose about 7%, Miami's increased 6.5%, while Kansas City, Northern New Jersey and Fort Lauderdale each saw an increase of about 3.4%.
“Sometimes the markets that look like they have the strongest outlook attract so much attention that the individual asset performance can be weakened by a flood of capital moving to the same place at the same time,” said Chang.
“When capital converges on a metro, real estate prices can be bid up, yields can compress, and the risk of overdevelopment rises. By the same token, opportunities can emerge in metro submarkets and property types that may be out of favor or are overlooked by other investors. So contrarian strategies can deliver outsized returns for investors who do their homework, dig below the surface and as always, keep their eyes on the horizon.”
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Kristen Smithberg
Kristen Smithberg is a Colorado-based freelance writer who covers commercial real estate, insurance, benefits and retirement topics for BenefitsPRO and other industry publications.
