Integra Realty Resources in its 2024 Mid-YearCommercial Real Estate Report said that the commercial real estate sector remains a resilient one despite the challenges of higher interest rates and construction costs.

The report also points to a stabilization in property prices as another sign of better times to come in the CRE market.

“While the commercial real estate market continues to face challenges, our 2024 Mid-Year Report demonstrates the industry’s remarkable adaptability,” said Anthony Graziano, chief executive officer of Integra Realty Resources.

In the report, Graziano said that the industry is seeing a stabilization in property prices and a modest increase in values this year. That, Graziano said, marks a significant turning point for commercial real estate and the professionals working in the business.

“Our analysis highlights key trends such as adaptive reuse in the industrial sector, resilience in multifamily markets, innovations in retail spaces and the evolving dynamics in the office sector as it adjusts to new work patterns,” Graziano said.

The mid-year release includes about 230 local reports covering nearly 60 U.S. markets across four property types: office, multifamily, retail and industrial. Interested in accessing the reports? You can find them at www.irr.com/research.

Here are some key Insights from IRR’s 2024 Mid-Year Report, listed in an official press release from the company:

OFFICE MARKET:

• Elevated Vacancy Rates and Negative Absorption: Express this to continue across all regions, driven largely by remote work trends. Integra also said that businesses will continue to migrate to tax-friendly states.
• Resilience in Specific Sectors: Medical office and biotech in most regions are experiencing stability since these sectors are the least susceptible to economic volatility and work-from-home trends.
• Major Value Trends: Limited capital availability and significant value declines in large urban markets are driving down office property prices, with these prices sometimes nearing land value. Tenant improvement costs are reducing effective returns, and the market is facing challenges in pricing because of low demand. Institutional investors are exiting long-term office holdings, with a narrow buyer pool mainly consisting of private equity acquiring downtown buildings at steep discounts. New Class-A buildings, though, are leasing well, given the low supply pipeline.
• Investment Metrics from the second quarter of 2023 to the second quarter of 2024:
  • Cap Rates: Nationally, CBD Class-B properties’ cap rates rose to 8.68%. Suburban Class A and B properties increased by 44 basis points. The East saw the largest increase for CBD Class B properties at 9.02%, while the South saw the smallest increase for Suburban Class A properties at 7.82%.
  • Market Rents: Nationally, Class A rents rose to $32.99, and Class B to $23.49. The South saw the highest growth for Class A properties at $28.83, while the West saw a decrease for Class B properties to $28.95.
  • Vacancy Rates: Nationally, Class A vacancy rates increased to 20.32%, and Class B to 20.96%. The West saw the highest increase for Class A properties at 20.63%, while the South saw the smallest increase for Class B properties at 21.30%.

MULTIFAMILY MARKET:

• High Interest Rates: The sharp interest rate hikes in 2022 disrupted value-add buyers with projects based on low interest rates and aggressive rent growth. This led to a slowdown in new developments and investment volumes across all regions, even in high-demand markets like Chicago, Los Angeles and Atlanta.
• Strong Demand and Low Vacancy Rates: Many markets reported balance in upcoming construction supply and continued strong demand resulting inpositive rent growth in cities like Grand Rapids, Detroit, Indianapolis, New Jersey, Philadelphia, Boise, Denver and Phoenix.
• Regional Resilience: The South and West are delivering major construction pipelines from 2021, but slower rent growth and higher vacancies are emerging. Markets with new supply exceeding 3% to 5% of inventory are expected to see unsustainable values in the short term. The market anticipates moderation in borrowing costs to address negative leverage on pre-2022 deals.
• Investment Metrics from Q2 ’23 to Q2 ’24:
  • Cap Rates: Nationally, Urban Class A properties rose 42 basis points to 5.61%, while Suburban Class B properties increased by 37 basis points to 6.29%. The East saw the highest increase for Urban Class B properties at 6.48%, while the Central region had the smallest increase for Suburban Class B properties at 6.80%.
  • Market Rents: Nationally, Class A properties increased by 0.11% to $1,950, and Class B by 0.01% to $1,307. The East saw the highest growth for Class A properties to $2,281, while the West saw a decrease for Class B properties to $1,736.
  • Vacancy Rates: Nationally, Class A vacancy rates increased by 75 basis points to 6.65%, and Class B by 55 basis points to 4.84%. The South saw the highest increase for Class A properties to 7.16%, while the East saw the smallest increase to 6.16%.
• Market Cycles: Since the fourth quarter of 2023, the multifamily market has shifted from Hypersupply to Expansion and Recovery, especially in the Central and East regions, indicating improving conditions. The market expects 2025 to mark the end of significant multifamily deliveries exceeding 3% of existing supply.

RETAIL MARKET:

• Demand Mixed, changing with continued Low Vacancy Rates: Retail tenant demand remains robust despite challenges in high-supply markets for Big Box and Jr. Box stores. In contrast, newer urban centers, upscale mixed-use developments, and community shopping centers are thriving. Markets like Chicago, Columbus, and Indianapolis report low vacancy rates and positive retail absorption, though consumer spending headwinds may impact the retail landscape.
• Rising Rents are evident in the South (e.g., Atlanta and Miami) and select Western cities (e.g., San Diego and Phoenix) driven by population growth and increases in population density and higher earning migration.
• Mixed-Use Developments: Increasing in the Central and East regions, with cities like Kansas City, St. Louis, and Hartford focusing on diversified retail spaces and revitalization.
• Investment Metrics from Q2 ’23 to Q2 ’24:
  • Cap Rates: Nationally, Community Retail properties rose by 10 basis points to 7.25%, and Neighborhood Retail properties increased by 9 basis points to 7.26%. The East saw the highest increase for Community Retail at 7.40%, while the South saw a decrease to 7.19%.
  • Market Rents: Nationally, Neighborhood Retail rents rose by 0.83% to $19.86, and Community Retail by 0.69% to $21.98. The South saw the highest growth for Neighborhood Retail rents, up 1.18% to $17.43.
  • Vacancy Rates: Nationally, Neighborhood Retail properties increased by 29 basis points to 10.89%, and Community Retail by 22 basis points to 10.32%. The Central region saw the highest increase for Neighborhood Retail at 13.17%.
• Market Cycles: Nationally, Expansion rose to 35.5%, while Hypersupply increased to 19.4%, Recession decreased to 14.5%, and Recovery dropped to 30.6%. In the East, Expansion fell to 0%, with Hypersupply rising to 38.5%, while the South saw Expansion grow to 59.3%. Demographic shifts into the South are driving retail expansions, although most regions are adapting retail assets to meet new tenant demands. E-commerce continues to influence smaller in-store footprints but hasn’t diminished overall retail demand.

INDUSTRIAL MARKET:

• Strong Demand and Rising Rents: E-commerce and supply chain needs continue to drive demand and push rental rates higher, particularly in Charlotte, Miami, Boise, and Phoenix although speculative construction and leasing velocity slowed in most markets by Q1-2024.  The strength of most industrial markets outpaced all other assets, including even multi-family, but the sector is not immune from volatility.
• Higher Vacancy Rates from New Supply: Prior increased speculative development has led to higher vacancy rates in markets like Chicago, Indianapolis, Dallas, and Los Angeles. Conversely, areas with limited new construction, such as Cleveland and Detroit, maintain low vacancy rates and limited price volatility.
• Strategic Locations: Demand and rental growth are sustained by strategic locations and infrastructure improvements, especially in Chicago, Kansas City, Raleigh, and Northern New Jersey. Regions with industrial land constraints and a strong manufacturing workforce, like those benefiting from automotive and onshoring expansions, continue to thrive.
• Adaptive Reuse: The conversion of older industrial buildings and underutilized properties into modern industrial facilities is gaining momentum, driven by the scarcity of industrial land in major cities. This trend is helping to support market prices for remaining inventory.
• Investment Metrics from Q2 ’23 to Q2 ’24:

• Cap Rates: Nationally, Warehouse cap rates increased by 23 basis points to 6.42%, while Flex Industrial properties rose by 17 basis points to 6.93%. The East saw the highest increase for Warehouse properties at 44 basis points to 6.92%, while the Central region had the smallest increase at 7 basis points to 7.13%.
• Market Rents: Nationally, Warehouse rents rose by 3.06% to $7.57, and Flex properties increased by 2.91% to $12.00. The East experienced the highest growth for Flex properties, up 3.88% to $13.02.
• Vacancy Rates: Nationally, Warehouse vacancy rates increased by 181 basis points to 6.30%, while Flex Industrial properties rose by 100 basis points to 6.96%. The West saw the largest regional increase for Warehouse properties, up 247 basis points to 6.49%.
• Market Cycles: Since Q4 ’23, the national industrial market saw Expansion decrease to 45.2%, Hypersupply increase to 43.5%, Recession remain at 4.8%, and Recovery increase to 6.5%. In the East, Expansion remained stable at 38.5%, with a decrease in Hypersupply to 38.5%.

The NRP Group in partnership with the City of Mesquite Housing Finance Corporation celebrated the financial closing and groundbreaking of The Fielder, a 288-unit affordable housing community in Mesquite, Texas.

Units will be reserved for residents earning between 50 to 70 percent of the Area Median Income.

The Fielder is located at 1300 Wooded Lake Drive, near the intersection of Interstate 30 and LBJ Freeway. The development offers easy access to downtown Dallas and is minutes away from the newly completed Urban District 30 – a 1-million square-foot industrial park that spans 82 acres. As the Dallas region’s population growth soars, The Fielder will accommodate employees in the surrounding area. The affordable housing development is the first partnership between a developer and the City of Mesquite.

The Fielder can accommodate both working professionals and growing families, with floorplans that include one-to-four-bedroom units. Additionally, resident services will include essential health and wellness screenings, after-school programs, and financial literacy training. The development will also feature best-in-class amenities including a pool, fitness center, community garden, dog park and numerous playgrounds.

This investment in Mesquite was made possible through housing tax credit equity and construction financing from Bank of America, with permanent financing provided by Bellwether Enterprise Real Estate Capital.

Cushman & Wakefieldrepresented Activate Games in its 12,078-square-foot lease for a new location at Grogan’s Mill shopping center in Spring, Texas.

Cushman & Wakefield’s Eric Lestin and Michael Burgower represented Activate Games, while Adam Blustein of Global Fund Investments represented ownership.

The Grogan’s Mill location, at 536 Sawdust Road, is Activate Games’ second location in metro Houston. Lestin and Burgower also represented the firm in its initial location in Katy at 20235 Katy Freeway.

Activate’s new state-of-the-art gaming facility welcomes all ages and skill levels, encouraging players to explore and create their own unique gaming experience. Here’s what to expect:

• Guests can sign up in groups of two to five players and challenge each other through progress tracking via Activate’s high-tech electronic RFID wristbands, racking up points, leveling up and earning prizes along the way. 
• Top gaming rooms at the new live-action gaming venue include the fast-paced Tik Tok viral Mega Grid with 500+ multi-activated rainbow-colored tiles, a technicolored Hoops Court, a digital dodgeball revamp called Strike, and reflex-defying Laser tag. 
• Players at Activate navigate through a series of games, their scores soaring as they leap, dodge, and strategize through the world’s first live-action gaming experience.

In recent years, some drugstores decided to experiment with the combination of product and service. The idea was to make healthcare more accessible for people. Someone could walk into a store to pick up necessary homecare or grocery items for the week, while also attending to their medical needs during the same trip.

Walmart, Walgreens, and CVS were some of the major retailers that began taking part in this experiment. Walmart launched Walmart Health in 2019, with the goal of delivering affordable healthcare to its customers. This launch included the opening of 51 health centers that focused on medical, dental, and behavioral health services across five states, along with virtual care options.

CVS created MinuteClinic facilities to branch out its healthcare operations. The first locations opened in the Midwest, and have since expanded across the country. Services here include family healthcare that is overseen by nurse practitioners. The business model for MinuteClinic locations is to meet consumers’ demand by offering accessible medical care that is high quality.

Walgreens began its expansion into the medical segment by acquiring VillageMD in 2021. The firm invested more than $10 billion in this acquisition to begin the development of doctor-staffed clinics at its pharmacies. This trade granted Walgreens a stake of more than 60% in VillageMD, which operates the clinics.

Jake Allen, Matthews Investment Services

Development of retail health clinics

Walmart

In launching Walmart Health, Walmart’s goal was to create a super center for healthcare, such as primary care and dentistry, by adding clinics to its retail stores. The firm also announced it would include transparent pricing with its health model, which meant that the price of its services would be added to its website for customers to view.

The first of these clinics opened in Georgia in 2019, with expansions as far as Arizona occurring in 2023. Walmart Health’s model was attractive to customers at first because it was a subscription service that wasn’t reliant on insurance; however, as the clinics continued to be developed, it transitioned into a more insurance-based model.

The shift to a new model was due to the company stating that the subscription service was not meeting the goal of Walmart Health. There were too many differences between the Walmart Health model and the Walmart stores. This shift is one reason that could have dissuaded customers from seeking out health clinic services here.

After five years of operation, Walmart Health made an announcement in April 2024 that it would be closing all 51 of its health centers, as well as its virtual care option. The company decided that its clinic operations were not a sustainable business model. It also stated that the escalating operating costs to continue Walmart Health created a lack of profitability that made its healthcare business unsustainable. Upon announcing the closure of Walmart Health, the company declined sharing possible losses of the closed clinics.

Walgreens

Apart from Walgreens’ notable acquisition of VillageMD, the company also partnered with Pearl Health in 2023 to aid its retail healthcare model. Pearl Health is a tech company that aims to provide insightful solutions to healthcare. Pearl’s model is based on helping primary care physicians transition away from fee-for-service and into value-based care programs that reward them for providing high-quality care at a lower cost.

Pearl Health stated that the goal of this partnership was to allow Walgreens to reach communities faster, as well as create affordable care options for patients in those communities.

Despite Walgreens adding VillageMD and Pearl Health to its healthcare expansion, these plans have not been successful for the retailer. During fall 2023, Walgreens announced its plans to close 60 underperforming clinics operated by VillageMD, and it will also exit five markets. These closures are the result of a $1 billion cost-cutting initiative under Walgreens CEO Tim Wentworth.

Although the company saw revenue growth in its U.S. Healthcare division, which includes VillageMD, the unit reported an $83 million adjusted operating loss. Walgreens now aims to create more profitable growth and improve cash management through a focus on providing patients with the best value possible. The firm’s closures reflect broader strategic shifts as the company seeks to align its cost structure and improve profitability in the drugstore segment.

CVS

CVS began its transition into retail healthcare by opening MinuteClinic. The goal of this business model was to mimic the services Urgent Care provides, but at a fraction of the cost. It included virtual care, as well as services like lab tests, vaccinations and prescribing medications.

MinuteClinic developed more locations than Walmart and Walgreens, with 1,100 locations throughout the country. However, this venture is starting to close down clinics, similar to Walgreens and Walmart. So far this year, CVS has announced that several MinuteClinic facilities will shut their doors. In just the Los Angeles area, 25 locations will be closed.

A spokesperson stated that these closures will support future growth and create the next evolution of community health destinations for the company. After these closures, CVS will now align its practices to ensure it is meeting the needs of its consumers and patients.

Factors contributing to the struggles for MinuteClinic properties include issues with patient referrals, long wait times, and misdiagnoses, leading to dissatisfaction among patients. Some patients have reported being directed to emergency rooms for conditions that could have been treated in the clinics, resulting in frustration and additional costs.

Traditional medical locations remain resilient

These retailer experiments only solidify that healthcare remains strongest in dedicated medical facilities, rather than stores that focus on the product over service.

Medical office buildings have always performed strongly as this sector consistently notes positivity, even amid economic headwinds. These locations draw in investors with long-term leases, high occupancy, and stability.

During the first half of this year, properties on average sold for $288 per square foot, which is 42% above non-traditional medical offices that sold for $202 per square foot. Phoenix led the nation in total investment, with $373 million in its trailing four-quarter investment volume as of the first quarter. Atlanta and Washington, D.C. followed, at $366 million and $346 million, respectively.

After the challenges in expanding to retail, most primary care will continue to be delivered where it always has. Health systems can provide the necessary expertise in delivering high-quality care within local communities, while the retailers can provide health system incumbents with expertise in customer service and convenience.

Although CVS, Walgreens, and Walmart have historically aided the traditional healthcare industry by providing a convenient place for consumers to fulfill prescriptions, pick up over-the-counter medications, and other medical household items, the challenges these retailers faced while attempting to compete with the traditional healthcare delivery model indicate primary care must be delivered where it always has—at healthcare and medical facilities.

Healthcare systems and operators have decades, if not centuries, of proven expertise, established synergies with other existing operators, and a proven track record of delivering high-quality care within their local communities that will continue for years to come.

Jake Allen is an associate specializing in healthcare for Matthews Real Estate Investment Services.

Industrial Outdoor Ventures leased its 10.98-acre industrial outdoor storage facility at 3500 Valley View Lane in Irving, Texas, to MEI Rigging & Crating.

MEI, already an IOV tenant in Houston, will utilize the site for outdoor storage, maintenance, and warehousing.

MEI Rigging & Crating is one of the largest providers of rigging, machinery moving, millwrighting, mechanical installation, storage and warehousing, crating and export packing services in the U.S.

The 3500 Valley View Lane facility features a 4,534-square-foot maintenance shop with three drive-thru bays and 24’ clear ceiling heights. The asset also includes a versatile, fully equipped 2,390-square-foot office building with private offices, conference room, and open-planning workspace. The 10.98-acre site is fully fenced, secure, and well-lit.

The Valley View Lane facility is well located in the market. It is situated immediately west of the President George Bush Turnpike (Highway 161) and north of Highway 183. It is within close proximity to DFW International Airport and Passport Business Park West. Prominent industrial users in the immediate area include ULINE, Amazon, Datey, GSM Outdoors, Tempur + Sealy, and APL Logistics.

David Guinn, Martin Grossman, and Keaton Duhon with Davidson Bogel Real Estate represented IOV in the transaction, while David Cartwright of Armour Realty represented the tenant.

 JLL Capital Markets secured financing for the refinance of Sylvania Industrial Park, a multi-tenant industrial manufacturing facility in Fort Worth, Texas.

JLL worked on behalf of CanTex Capital to secure the three-year, floating-rate financing through MetLife Investment Management.

Totaling 893,738 square feet on 54.9 acres, the property provides tenants with attractive functionality including varying clear heights up to 50 feet, overhead bridge cranes, heavy power and rail access. The industrial park is currently leased to 15 tenants including a variety of national brands such as Tyson Foods, TK Airport Solutions (a subsidiary of TKE), JR New Energy and Andes Coil Processors.

Sylvania Industrial Park benefits from its proximity to downtown Fort Worth, with easy access to the major transportation arteries of I-35W and Loop 820. It is also situated in the highly sought-after industrial submarket of Meacham Field/Fossil Creek within the Dallas-Fort Worth metroplex.

The JLL Debt Advisory team was led by Senior Managing Director Jim Curtin, Senior Director Jarrod McCabe, Associate Luke Rogers and Analyst Jordan Buck.