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.