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The National Association of Realtors (NAR) dropped its January 2025 Commercial Real Estate Market Insights, and the numbers paint a picture of shifting momentum across the industry. Some sectors are thriving, some are cooling, and others are still searching for their post-pandemic footing.

“At year-end, demand for office space has improved but remained insufficient to turn net absorption positive, keeping vacancy rates at record highs. The retail sector remained tight due to limited new supply, whereas industrial vacancy rates have been steadily rising, leading to a slowdown in rent growth for industrial properties. Meanwhile, the multifamily sector continued to experience strong growth, with demand approaching the record-high levels seen in 2021.” – NAR

Office: Still a Tough Sell, But Improving

The office sector is far from a comeback story, but things are slightly less painful than they were a year ago. Net absorption improved from a brutal -63 million square feet in early 2024 to -18 million square feet by the end of the year. Some cities—New York, Dallas, Austin, and Houston—saw positive absorption, signaling that demand isn’t completely dead. That said, high vacancy rates continue to weigh on the market, and creative repurposing (think office-to-residential conversions) may be the way forward.

Multifamily: Phoenix Making Major Moves

The multifamily sector is still a power player, absorbing over 550,000 units in 2024. But with so many new apartments hitting the market, vacancies edged up to 8%, and rent growth flattened to 1%.

Phoenix stood out as one of the top 10 markets for multifamily absorption, with a huge jump from 10,570 units in Q4 2023 to 19,544 units in Q4 2024—nearly doubling demand in just a year. This tells us that even with increased supply, Phoenix’s rental market is still attracting residents at a rapid pace.

Retail: Scarcity Drives Value

Retail remains one of the tightest commercial real estate sectors, with available space for lease below 5%. Thanks to limited new supply and solid consumer spending, landlords hold the upper hand. In 2024, just 30 million square feet of new retail space was delivered—40% below the 10-year average—so don’t expect a flood of vacancies anytime soon.

Industrial: Phoenix Stays Strong Amid a Slowdown

The industrial sector cooled off in 2024, with absorption down 35% year-over-year. Rent growth slowed to 2.2% (down from 7.2% in 2023), and the vacancy rate ticked up to 6.8%.

But Phoenix was among the top 10 markets for industrial absorption, increasing from 13.16 million square feet in Q4 2023 to 13.61 million square feet in Q4 2024. This shows that even with a national slowdown, Phoenix remains a key logistics and warehouse hub.

Hotels: Stable, But Not Fully Back

The hospitality sector is holding steady, with occupancy rates at 62.9%—still 2.9% below pre-pandemic levels. However, average daily rates and revenue per available room have fully recovered, meaning hotels are making more money per booking even if occupancy isn’t back to 2019 levels.

Final Take: Phoenix is Still a Commercial Hotspot

While some commercial sectors are facing headwinds, Phoenix continues to attract strong multifamily and industrial demand. If interest rates decline in 2025, as expected, we could see even more movement in these key areas. For investors, now might be the time to position for the next wave of growth.