Where Is Commercial Real Estate Demand Headed Next? Follow the Jobs and the People

NAR's new Commercial Real Estate Demand Index offers investors a forward-looking way to identify markets where office, retail, industrial and multifamily demand may be building before it shows up in traditional real estate data.

By Tide Realty Group

Commercial Real Estate Demand Starts Before the Lease Is Signed

Commercial real estate investors spend enormous amounts of time analyzing what has already happened.

Vacancy rates.

Rental growth.

Cap rates.

Sales volume.

Absorption.

New construction.

Those numbers are essential—but most of them are lagging indicators.

By the time rents have increased, vacancies have declined and leasing activity has accelerated, the underlying economic forces responsible for that demand may have been building for years.

So what if investors could identify those forces earlier?

That is the idea behind the National Association of Realtors' new Commercial Real Estate Demand Index, recently highlighted by CNBC.

Rather than simply measuring current property-market conditions, the index attempts to identify where commercial real estate demand may be developing next by analyzing something even more fundamental:

Jobs and people.

For investors, landlords, developers and retailers, that distinction matters.

Because commercial real estate demand doesn't begin when someone signs a lease.

It begins when businesses hire employees, industries expand, populations grow and people move.

What Is the Commercial Real Estate Demand Index?

NAR's new index analyzes more than 300 metropolitan markets across the United States and evaluates four major commercial real estate sectors:

• Office
• Industrial
• Retail
• Multifamily

Instead of relying exclusively on traditional property metrics, the index incorporates economic and demographic information from sources including the Bureau of Labor Statistics and U.S. Census Bureau.

Each property sector is evaluated differently because the forces creating demand are different.

Office

NAR examines growth in professional and business services employment.

More office-using employees can ultimately translate into greater demand for workspace.

Industrial

The index examines employment growth in:

• Manufacturing
• Transportation
• Warehousing

Those industries are closely connected to demand for warehouses, distribution facilities, manufacturing buildings and logistics properties.

Retail

Retail demand incorporates employment growth in:

• Retail trade
• Leisure
• Hospitality

Growth in these sectors can indicate expanding consumer activity and greater need for stores, restaurants, entertainment and service businesses.

Multifamily

Multifamily demand is driven heavily by:

• Population growth
• Domestic migration
• International migration

More people ultimately require more housing.

Simple concept.

Powerful implications.

Real Estate Demand Is Ultimately Economic Demand

One of the most important lessons for commercial real estate investors is that real estate doesn't operate independently of the economy surrounding it.

A beautiful office building in a market losing employers can struggle.

A warehouse in a growing logistics corridor can outperform.

A shopping center located where population and household formation are accelerating can experience stronger tenant demand.

A multifamily property in a market attracting thousands of new residents may benefit from sustained housing demand.

The building matters.

But so does everything happening around it.

That is why sophisticated underwriting should extend beyond the property line.

Investors should understand:

Who is moving into the market?

Which industries are hiring?

Where are businesses expanding?

Where is population growing?

Where is infrastructure being built?

Where is capital being invested?

Those trends can eventually determine which properties experience rent growth—and which struggle with vacancy.

St. George, Utah Leads the Country

According to the inaugural index, St. George, Utah, ranked as the strongest metropolitan market for overall commercial real estate demand.

The market received an overall score of 128.

Why?

Not because of one isolated real estate statistic.

St. George benefits from a combination of economic and demographic momentum, including strong population growth, in-migration, office employment growth and above-average industrial demand.

That combination is important.

Investors should generally be cautious about markets whose growth depends entirely on one employer, one industry or one temporary economic trend.

Broad-based economic expansion can provide a more durable foundation for commercial real estate.

Raleigh Stands Out Among Major Markets

Perhaps one of the most interesting findings involves Raleigh, North Carolina.

Among the country's 50 largest metropolitan areas, Raleigh ranked highest, with a reported score of 121.

Even more noteworthy, Raleigh was reportedly the only major U.S. metropolitan market performing more strongly on the index today than it did during 2022, when pandemic-era migration patterns were producing extraordinary growth across many Sun Belt markets.

That's significant.

During and immediately following the pandemic, investors aggressively pursued markets experiencing rapid population migration.

Cities across Texas, Florida, Arizona and other Sun Belt states attracted enormous amounts of real estate capital.

But markets evolve.

Which leads to another important lesson.

Yesterday's Hot Market Isn't Automatically Tomorrow's Hot Market

Commercial real estate investors can become anchored to old narratives.

Austin is booming.

Miami is booming.

Everyone is moving to Florida.

Everyone is moving to Texas.

Those statements may have been directionally correct at one point.

But real estate markets aren't static.

According to the NAR index highlighted by CNBC, several previously red-hot markets—including Austin, Miami and Naples—have declined meaningfully from their 2022 readings.

That doesn't necessarily mean those are bad real estate markets.

It means the rate of underlying momentum has changed.

That distinction is critical.

A market can remain economically strong while becoming less attractive at a particular price.

Conversely, a smaller market receiving relatively little institutional attention may offer compelling opportunities if its economic fundamentals are accelerating.

Small and Midsized Markets Deserve More Attention

One of the most interesting conclusions from NAR's analysis is that some of the strongest forward-looking demand isn't necessarily concentrated in America's largest cities.

Markets highlighted as worth watching include:

Fayetteville-Springdale-Rogers, Arkansas

Huntsville, Alabama

Spartanburg, South Carolina

These markets benefit from different combinations of employment growth, population expansion and industry development.

This creates an important question for investors:

Are you investing where everyone else is already looking—or where demand may be going next?

Large gateway markets provide enormous advantages.

Liquidity.

Population.

Infrastructure.

Institutional capital.

Global connectivity.

But smaller markets can sometimes provide faster growth and more attractive acquisition economics.

The appropriate strategy depends on the investor.

Industrial: Follow Manufacturing, Transportation and Warehousing

Industrial real estate provides perhaps the clearest example of why employment data matters.

Warehouses don't create demand for themselves.

Demand is generated by businesses that need to:

• Manufacture products
• Store inventory
• Fulfill e-commerce orders
• Distribute goods
• Operate fleets
• Serve population centers

NAR's index identifies Salem, Oregon and Fairbanks, Alaska among the strongest markets for industrial demand.

For industrial investors, understanding the local employment base can therefore be just as important as analyzing vacancy.

At Tide Realty Group, we believe industrial prospecting and investment analysis should examine industries including:

• Distribution
• Manufacturing
• E-commerce
• Third-party logistics
• Storage
• Energy
• Automotive
• Truck sales and service
• Building materials
• Food distribution

Follow the companies.

Follow the jobs.

Then follow the real estate requirement.

Retail: Follow Population, Employment and Consumer Activity

Retail follows people.

But not simply population.

The strongest retail markets generally combine:

• Population density
• Household income
• Employment
• Tourism
• Transportation
• Consumer spending
• Residential growth
• Office populations
• Entertainment
• Hospitality

NAR's methodology incorporates retail trade along with leisure and hospitality employment when evaluating future retail demand.

That makes intuitive sense.

When restaurants are expanding, hotels are hiring, entertainment venues are opening and retailers are adding employees, physical space demand generally follows.

For landlords and retail investors, these indicators can help identify neighborhoods where leasing momentum may strengthen before rents fully reflect that demand.

Multifamily: Follow Migration

Few statistics influence housing demand more directly than population growth.

When people move somewhere, they need somewhere to live.

NAR therefore incorporates both domestic and international net migration, along with overall population growth, when evaluating multifamily demand.

For investors, however, population growth should never be analyzed in isolation.

The better questions are:

Why are people moving there?

Are jobs growing too?

What are they earning?

How much housing is being built?

Can residents afford current rents?

Is infrastructure keeping pace?

Rapid population growth accompanied by excessive construction can eventually create oversupply.

The strongest opportunities often exist where population and employment growth exceed the market's ability to deliver new inventory.

What Does This Mean for New York?

NAR's index suggests that large coastal markets such as New York generally aren't experiencing the same growth momentum as some smaller Sun Belt markets.

But interpreting that conclusion requires nuance.

New York is not St. George.

And it shouldn't be underwritten as if it were.

New York's investment thesis is built around a different set of characteristics:

• Extraordinary population density
• Limited land
• High barriers to entry
• Global capital
• Extensive transportation infrastructure
• Tourism
• International immigration
• Concentrated employment
• World-class universities
• Financial services
• Technology
• Healthcare
• Media
• Hospitality
• Entertainment

Growth rate is only one component of investment performance.

Scarcity matters too.

A market growing 5% annually with unlimited developable land can behave very differently from a mature market growing more slowly where new supply is extraordinarily difficult to create.

That's particularly important when analyzing New York retail, multifamily and industrial assets.

Investors Should Combine Growth With Scarcity

This is where forward-looking demand indicators become especially useful.

Investors shouldn't simply ask:

Where is population growing fastest?

Instead ask:

Where is demand growing faster than supply?

That equation is much more powerful.

Consider:

Market A

Population growth: 4%

New supply growth: 7%

Market B

Population growth: 1.5%

New supply growth: 0.5%

Which market has the stronger investment fundamentals?

It may be Market B.

That is why no single index should determine an acquisition.

NAR itself cautions that its Demand Index isn't telling investors simply to buy property in the highest-ranked markets.

It identifies momentum.

Investors still need to underwrite the actual real estate.

The Indicators Tide Realty Group Believes Investors Should Watch

NAR's index provides another useful tool, but commercial real estate investors should evaluate multiple indicators together.

At Tide Realty Group, we believe market analysis should consider:

Economic Indicators

• Employment growth
• Wage growth
• GDP
• Business formation
• Consumer spending
• Retail sales

Demographic Indicators

• Population growth
• Domestic migration
• International migration
• Household formation
• Income growth

Real Estate Indicators

• Vacancy
• Availability
• Absorption
• Asking rents
• Effective rents
• Construction pipeline
• Deliveries
• Leasing velocity

Capital Market Indicators

• 10-Year Treasury
• SOFR
• Lending spreads
• Loan-to-value ratios
• Debt availability
• Cap rates
• Transaction volume

No single statistic tells the entire story.

Together, however, they can reveal where opportunities may be developing.

Don't Just Study Where the Market Is. Study Where It's Going.

Commercial real estate investing has traditionally relied heavily on historical information.

Comparable sales tell us what properties sold for.

Rent comparables tell us what tenants recently paid.

Vacancy tells us how much space is currently available.

Those statistics remain essential.

But investors who consistently outperform also ask a different question:

What happens next?

Where will companies hire?

Where will people move?

Where will retailers expand?

Where will manufacturers build?

Where will infrastructure investment create new demand?

And where will future demand collide with constrained supply?

Those are the questions that can uncover opportunity before it becomes obvious.

Tide Realty Group's Perspective

At Tide Realty Group, we believe the strongest commercial real estate decisions combine property-level expertise with broader economic intelligence.

Whether we're advising a retailer evaluating expansion, a landlord repositioning a property, an investor considering an acquisition or an owner evaluating a sale, understanding the forces driving future demand is essential.

The new NAR Commercial Real Estate Demand Index reinforces a fundamental principle of real estate investing:

Follow the jobs. Follow the people. Follow the capital. Then understand the supply.

The best opportunities aren't always located where today's headlines say the market is strongest.

Sometimes they're located where tomorrow's demand is only beginning to emerge.

Looking for Your Next Commercial Real Estate Opportunity?

Tide Realty Group advises landlords, tenants, investors and developers throughout New York and across expanding national markets.

Our services include:

• Tenant Representation
• Landlord Representation
• Retail Leasing
• Industrial Real Estate
• Investment Sales
• Acquisitions
• Property Repositioning
• Market Analysis
• Strategic Advisory

Whether you're evaluating your next market, expanding a business or considering the acquisition or sale of commercial property, we can help you understand both where the market is today—and where it may be going next.

Tom Caliendo
Managing Principal
Tide Realty Group

LinkedIn: https://www.linkedin.com/in/thomascaliendo/
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The Rising Tide Lifts All Ships.

Source / Further Reading

CNBC Property Play — Diana Olick
Where Commercial Real Estate Demand Is the Highest, According to New Data

National Association of Realtors
Commercial Real Estate Demand Index