In July 2025, the Federal Reserve held its benchmark rate at 4.5% for the fifth consecutive meeting, holding steady after last year's cuts. Inflation was virtually unchanged at 2.7%, remaining above the Fed's 2% goal. Job growth weakened, with payrolls up just 73,000 after sharp downward revisions in May and June, while unemployment edged up to 4.2%. The economy, however, showed some resilience, with GDP rebounding 3% in Q2, driven by stronger consumer spending and lower imports. With the labor market cooling, the Federal Reserve is anticipated to cut the rates as soon as September, eventually easing borrowing costs in the commercial real estate market.
Under this economic environment, office absorption declined again in July. Losses, however, were far milder than last year, with vacancies stuck at record highs and rent growth remaining subdued. The multifamily market continued to stabilize, with absorption holding steady while new deliveries outpacing demand, but with the gap slowly narrowing. Even so, vacancies continued to increase in this sector as supply pressures persisted. Retail demand weakened further, with absorption turning sharply negative and vacancy rising to 4.3%, even as it retained the fastest rent growth among major sectors. Industrial momentum also cooled further, with absorption falling to a decade low, vacancy climbing to 7.5%, and rent gains slowing in line with oversupply.
Office Properties
After nearly turning positive in early 2025, office absorption slipped back into negative territory in the second quarter and has remained there through July – this time at a much milder pace than last year's steep losses. Vacancy held steady at 14.1%, while landlord concessions continued to keep rent growth subdued at 0.7%. Class A properties managed another quarter of positive absorption, but conditions in Class B offices weakened further, even as rents held up better than average. Class C space remained under pressure, facing continued tenant losses and rising vacancy.
Multifamily Properties
As of July 2025, the multifamily market shows continued signs of stabilization, with net absorption steady at 512,000 units and new completions down 16%. Vacancy edged up to 8.1% as supply still outpaces demand, though the gap is narrowing. Rent growth held at 1.0%, with Class B properties capturing stronger demand, while Class A maintained the highest vacancies and Class C continued to vacate units despite firmer rent gains. Oversupply weighed on several Sun Belt metros, while San Francisco, CA, and South Bend, IN, posted the strongest rent growth in the nation.
Retail Properties
Retail demand has softened over the past year, with 12-month net absorption dropping from 29.4 million to –10.9 million square feet, while rent growth slowed to 1.8% yet remained the strongest among major CRE sectors. Vacancy edged up to 4.3% in July but remained the lowest of all major sectors. General retail remained the sector’s bright spot with positive absorption and the lowest vacancy, while neighborhood centers and malls were the weakest performers. Power centers and neighborhood centers continued to show relative strength on the rent side, underscoring the resilience of well-located and necessity-driven retail formats.
Industrial Properties
The industrial sector’s momentum has cooled, with oversupply and weaker demand driving a 54% year-over-year drop in net absorption to a decade-low 60.5M SF. New completions outpaced demand by 4 to 1, pushing vacancy up to 7.5%. Rent growth slowed to 1.7%, underscoring the sector’s loss of momentum. Logistics properties remained the main source of demand, supported by a surge in specialized facilities, while flex space continued to shed tenants.
Hotel/Motel Properties
The hospitality industry remains stable in July 2025. Hotel occupancy stands at 62.9%, still 3.1% below pre-pandemic figures, primarily due to ongoing remote work patterns and reduced corporate travel affecting urban markets. Even so, both average daily rates and revenue per available room have exceeded pre-pandemic levels, indicating a strong recovery in profitability.
