Real estate fundamentals strengthened in the second quarter as resilient demand and lower levels of new supply outweighed headwinds from economic uncertainty, slower demographic growth and resource constraints.
Executive Summary
ECONOMY
- The U.S. economy remained resilient in the second quarter, supported by improved hiring, strong business investment, and continued consumer and federal spending despite ongoing geopolitical uncertainty and policy volatility.
- Growth is led by a narrow set of demand drivers, including higher income demographics, AI and infrastructure capex, and reindustrialization investment with strong business earnings.
- Interest rates remain a headwind for real estate. Markets have priced in Fed tightening, though a resilient economic outlook continues to support property demand and net operating income growth.
PROPERTY MARKETS
- Real estate fundamentals strengthened in the second quarter, with improving occupancy trends and continued benefits from lower levels of new supply. Demand increased for certain alternative property sectors, such as senior housing.
- Capital markets remained active, with CRE transaction volumes increasing 17% year-over-year and debt market liquidity supported by strong competition among lenders with tighter credit spreads.
- Dispersion remains a defining market feature, with performance increasingly driven by exposure to structural demand drivers and varying significantly across property types and markets.