Commercial Real Estate’s June Outlook: A Long-Awaited Boost in Sentiment, Retail’s Renaissance, and TikTok’s Time in the Sun

Welcome to the CRE News Digest from First American Title NCS, where we explore the biggest stories in commercial real estate. As a legacy brand that has worked in CRE for over 120 years, First American knows the market and the forces impacting our clients’ businesses.

Big Picture: Sentiment Spikes

This month, NAIOP released their biannual CRE Sentiment Index. The survey of more than 450 developers, brokers, analysts, and other industry leaders found that a majority of respondents believe CRE conditions will be favorable over the next 12 months. The final score was 52 out of 100, and any score above 50 indicates that respondents expect favorable CRE conditions. This.was the highest score since April 2022 and a six-point increase from the last survey in September 2023. In particular, respondents expressed increased optimism about capital market conditions, including the availability of debt, the availability of equity, and cap rates.

 Some industry leaders and experts echo the survey’s positive sentiments. Victor Calanog, global head of research and strategy at Manulife Investment Management, shared with Benzinga, “As long as local and global economic growth remains on track, there's no reason to downgrade forecasts — for now.” In a recent analysis of transaction volume, First American’s Senior Commercial Real Estate Economist Xander Snyder shares that while sales have slowed, “we are probably at or close to a trough… transaction volume will likely pick back up towards the end of this year, and that will certainly be aided by any interest rate cuts that might materialize.”

 State of the Sector: Retail

Retail real estate is enjoying a relatively strong post-COVID recovery, especially when compared to the beleaguered office sector. What some experts have dubbed a “retail renaissance” is fueled in part by a long-term slowdown in construction, which has driven vacancy rates to near-historic lows and pushed up rents. According to research from Snyder, the square footage of retail property transacted in Q1 2024 increased by 46 million feet from Q3 2020, while office and industrial space transacted remained unchanged or lower from the same period.

 An emerging trend in the sector is increasing demand for mixed-use “lifestyle centers” that combine residences, shopping, and other experiential and outdoor spaces. Bill Shopoff, founder and CEO of Shopoff Realty Investments, shared with GlobeSt. that “retail that surrounds new residential will do better given the built-in customers.” However, some experts are worried that a slowdown in consumer spending could slow growth. According to Commercial Observer, “The next 12 to 18 months will reveal the answer to that question as the market gets a sense of how the consumer spending numbers shake out.”

 Innovation: Clocking TikTok’s Impact on CRE

The effects of TikTok’s rise in popularity in recent years have been felt across the CRE industry. The app has provided brokers with a new platform to reach potential customers and network within the industry. According to Bisnow, “There is a tight-knit community of fellow CRE pros on the app… and they refer deals to each other.” Other brokers have leveraged the platform to “educate and attract people to [CRE].” TikTok’s influence has also impacted CRE on the ground as the company looks for office space. Notably, TikTok recently signed a deal for 144,000 sq. ft. in a new office tower in Nashville, following earlier deals in San Jose and Seattle. TikTok’s future in the U.S. remains uncertain, however, as does its long-term impact on the industry.