The supply and demand dynamics in the U.S. commercial real estate market in 2023 present a complex picture, influenced by various economic factors and trends specific to different segments of the market, such as office spaces, industrial and logistics properties, and multifamily units.

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Office Spaces

1. Supply: There's a significant decrease in new construction for office spaces. CBRE forecasts that construction deliveries will total 37.5 million square feet in 2023, a 27% drop from the five-year average. This trend indicates a reduced supply-side risk and a potential future shortage of prime office space.

2. Demand: Demand for prime office space remains strong, especially in fast-growing Sun Belt markets like Austin, Dallas, Miami, and Nashville. However, there's a shift toward smaller leases, with the average lease size in H1 2023 being 28% less than the H1 2018/19 average. .

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3. Vacancy Rates: Overall office vacancy rates have increased to 18.2%, a 30-year high, due to negative net absorption and new supply. However, newer buildings (constructed since 2010) have a lower vacancy rate of 14.4%. .

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4. Rent Growth: Despite stable asking rents in H1 2023, rent growth has been limited to top-tier properties. The trend of moving to quality spaces continues, but overall rent pressure is evident due to increased vacancies and sublease spaces. .

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Industrial & Logistics

1. Leasing Activity: After the pandemic-fueled spike in leasing activity, the market is adjusting to a new normal. The total leasing volume in H1 2023 was 372.7 million square feet, indicating a strong year despite economic uncertainties. Renewal activity forms a significant portion of these transactions. 

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2. Vacancy Rates: The vacancy rate slightly increased to 3.7% in Q2 2023 but is expected to peak at 4.5% by year-end due to an oversupply of larger facilities. However, a reduction in construction starts is likely to lower the vacancy rate by mid-2024. 

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3. Rent Growth: The industrial sector is on track for double-digit rent growth in 2023, with an average first-year base rent increase of 16.6% in H1 2023. This growth is now shifting from traditional gateway markets to areas with strong population growth or established logistics hubs. 

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Multifamily Units

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1. Supply: The supply of multifamily units is robust, with 450,000 units expected to be completed in 2023, surpassing initial forecasts. This increase in supply suggests a response to strong market demand. 

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2. Demand: Net absorption of multifamily units is strong, with 71,000 units absorbed in H1 2023, almost double the initial expectations. The total absorption for 2023 is projected to be 307,000 units, reflecting a resilient demand despite economic challenges. 

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3. Vacancy Rates: The vacancy rate is expected to peak at 5.4% in Q2 2024 due to the economic downturn and the completion of additional units. However, it is anticipated to rebalance and drift back down towards 5.0% by Q2 2025. 

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4. Rent Growth: Effective rent growth is projected to be above average, at 3.5% in 2023 and 2.3% in 2024, indicating sustained demand and the ability of the market to absorb new supply without significantly impacting rent levels. 

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In conclusion, the U.S. commercial real estate market in 2023 is navigating through a period of adjustment following the extraordinary circumstances of the past few years. While certain segments like industrial and logistics continue to exhibit robust growth, the office sector is facing challenges with higher vacancy rates and shifting demand dynamics. The multifamily segment, on the other hand, shows resilience with strong demand and absorption rates, despite an increasing supply. These trends underscore the diverse and evolving nature of the commercial real estate market in response to broader economic conditions.

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