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Late last year, many were predicting a new growth cycle for the U.S. Industrial Commercial Real Estate (CRE) market. For example, in December when CBRE published its 2025 U.S. Real Estate Market Outlook, they predicted that the U.S. industrial market would enter a new cycle in 2025 with a return to pre-pandemic demand drivers. They said industrial occupiers would start focusing on longer-term strategies to improve warehouse efficiency and ensure supply chain resiliency. And that demand for newly constructed space would drive up the vacancy rate of older buildings. At that time, few anticipated the level of uncertainty that would ensue in the wake of changing U.S. economic and trade policies. As of May 2025, the U.S. and China had paused their retaliatory tariffs for 90-days, leaving a 30% levy that the U.S. is now imposing on Chinese goods. However, businesses and investors must contend with uncertainty about whether the truce will last. But this situation is only part of a broader scenario in which dozens of other countries await news from the White House regarding revised tariff rates that will follow the current 90-day pause. The result is already reshaping the global supply chain and logistic networks, starting with the slowing flow of goods into the U.S. The Port of Los Angeles, for instance, has seen a 35% drop in arriving cargo vessels as of the 2nd week in May 2025 vs. the same week a year earlier. The disruption goes beyond the here and now; the inability to plan into the months ahead makes the situation at the ports a guessing game for labor and planning, including the scheduling of dockworkers, heavy equipment operators, and trucking services. According to Gene Seroka, executive director of the Port of Los Angeles, “As far as forecasting, with the whipsaw effect of information that’s been coming out of Washington — the reprieve of 90 days, the changes with electronics and auto parts, and maybe some retail in the middle of that — it’s really hard to forecast.” As disruptions trigger a ripple effect across industries worldwide, the global supply chain is positioning itself for major transformation. With markets in flux, the National Association for Industrial and Office Parks (NAIOP) reports that many companies are pausing investment and deferring major decisions, including whether and where to lease industrial space. At this point, experienced CRE industry professionals must rely on their knowledge — guided by the cyclical history of CRE, day-by-day data analysis, the latest intelligence, and some instinct. Let’s take a look at just some of the ways this may all unfold — and what it could mean specifically for industrial CRE. Industrial Leasing and Tenant Demand The industrial leasing market has been steady but cautious as tenants digest the tariff news. Key leasing trends include: Lease renewal over expansion — Many companies have delayed new warehouse expansions or relocations, opting instead to renew existing space until tariff outcomes are clear. CBRE recently reported that industrial construction slowed while industrial leasing held steady at about 180M square feet in Q1 of 2025. Rise of third-party logistics (3PL) demand — Amid trade policy uncertainty, CBRE sees some industrial occupiers outsourcing to 3PL providers. As more businesses rely on them, these providers will, in turn, take on a larger share of leasing activity. Vacancy tick-up — Even with solid leasing deals, overall vacancy has crept upward — due in part to new supply hitting the market. CBRE reported a 20 basis-point rise in national vacancy to about 6.3% in Q1 2025 — the highest level since 2014. Potentially slower economic growth would also weaken fundamentals across property types, leading to higher vacancy rates, and be a headwind for investment activity. However, this may be partially offset by lower long-term interest rates and cheaper debt costs. Modest net absorption — With some tenants on hold, net absorption is subdued. For example, CBRE cites just 23.3 million square foot of positive net absorption in Q1 2025, which is modest compared to earlier peaks. In summary, leasing activity so far in 2025 is underpinned by tentative demand: occupiers are holding off on major expansions, while 3PLs and domestic distributors lead tenant activity in the interim. Construction Activity and Costs Tariffs are also crimping the development pipeline and construction budgets for Industrial, with the result being a rise in material prices and project delays: Higher material costs — New levies on steel, lumber, equipment and other inputs will increase construction expenses. CBRE estimates that the tariffs announced in April 2025 could inflate overall commercial construction costs by roughly 5%. Projects on hold and a shrinking pipeline — Faced with cost uncertainty, many developers are pausing or scaling back new projects. Groundbreaking of some developments may be put off as builders re-evaluate feasibility under higher-cost scenarios. JLL notes that U.S. industrial projects under construction totaled about 253 million square foot by Q1 — roughly 30% less than a year earlier and the lowest pipeline level since 2015. According to CBRE, in Q1 alone just 64.6M square foot of new industrial space was completed, the weakest quarterly delivery tally since 2018. In many markets, construction starts are near decade-lows as speculative projects are deferred. Supply chain delays — Tariffs and trade disruptions are also affecting the supply chain for construction itself. The NAIOP Research Foundation notes that companies are carrying higher inventories of building materials to buffer tariffs, but near-term shortages or shipping delays appear possible. For example, surcharges on Chinese-built ships and other fees have effectively reduced freight capacity to U.S. ports, which could slow shipments of steel and equipment and delay project timelines. Overall, industrial remains the strongest corner of the market. The consensus is that industrial and multifamily will lead any recovery in investment activity. However, many are factoring in a premium for uncertainty; one recent summary noted that tariffs were already “reducing the strength” of CBRE’s incoming business pipeline. In practice, transaction volumes have slowed slightly in Q1-Q2 as buyers and sellers price in trade risk. Still, global allocators with limited U.S. exposure are actively looking to enter the industrial sector. Outlook: Reshoring and Opportunities Ecommerce and manufacturing reshoring continues to underpin demand for warehouses and factories. Key drivers for this rebound include: Reshoring of manufacturing — A number of companies are moving production back to North America to avoid high tariffs and improve supply resilience. New factory and processing facility needs (like semiconductors, electric vehicles [EVs]), pharma and food processing) will drive fresh demand for industrial land and buildings. Nearshoring and trade deals — Even before the 2025 tariffs, firms were planning to source more regionally. A 2023 Accenture study found that by 2026 about 65% of companies intend to buy key inputs from regional suppliers, a significant increase from the current 38%. This shift reflects a broader trend of companies seeking to become more resilient to supply chain disruptions by diversifying their sourcing and production. Technological and Green transformations — With competition growing in industrial CRE, some landlords are repositioning assets with sustainability upgrades or flexible layouts. Energy-efficient space that provides automation, robotics, etc., remains attractive to cautious tenants during economic uncertainty. Conclusion The current uncertainty around tariffs has produced some challenges for industrial CRE — the possibilities of slow leasing growth, combined with rising construction costs, is adding risk to underwriting. However, there may still be reason for optimism. When the tariff situation is resolved, the underlying fundamentals — low vacancy in core regions, rising regional manufacturing, and e-commerce growth — are likely to lead to growth in the industrial market.

Leveraging artificial intelligence Trends in business is not new. Using machine learning (ML) and language processing across a range of functional areas and skill sets has been in practice for decades’ However, that traditional scope has had limitations, leaving more creative disciplines to human thinking. The emergence of generative AI has shifted our thinking—with use cases demonstrating that the automation of creativity and imagination could be a reality sooner than may have been anticipated . READ the rest of the story here: https://www2.deloitte.com/us/en/insights/industry/financial-services/generative-ai-in-real-estate-benefits.html

Commercial Real Estate Terms You Need to Know Buying or Leasing Commercial Real Estate is one of the biggest expenses incurred by your business. When leasing or buying commercial real estate, the vocabulary can be intimidating and confusing at first. Whether you need a small retail shop or a large warehouse, a basic understanding of common Commercial Real Estate industry terms used will help you better understand the process. If you are ready to dive into buying or leasing commercial real estate, I’ve outlined key commercial real estate terms that you’ll need to know. Becoming familiar with some basic terminology will untangle the confusing process and help you make informed decisions. First things first, what is Commercial Real Estate? Commercial Real Estate includes all buying, selling, and leasing of any Commercial property that is used or zoned for purposes such as Retail, Industrial, Office, Medical, Multifamily of 4 units or more, and Commercial Land. What are the different types of Leases? FSG- Full-Service Gross Lease: A Full-Service Gross lease includes the base rent and other building operating expenses, including janitorial service, utilities, maintenance and repairs, building insurance and property tax, and common area maintenance (CAM). None of the additional services are charged as additional rent. You pay a base rent amount only. MG – Modified Gross Lease: A Modified Gross lease is essentially the same as a FSG lease where the tenant pays base rent, but with an MG lease, the tenant also pays additional costs associated with the property such as: janitorial, a utility bill(s), or garbage. NNN – Triple Net Lease: A Triple Net Lease (NNN) is an agreement where the tenant pays their proportionate share of building expenses called Nets and include real estate taxes, building insurance, and Common Area Maintenance (CAM). The tenant pays for the above named monthly NNN expenses, plus base rent, plus utilities. Load factor: This is a calculation used in buildings that have common areas such as hallways, bathrooms, entry, common conference rooms to determine how much of the building these areas occupy. That percentage of the building is called a load factor. In buildings where tenants also use a common area, there is a load factor added onto the square footage of space they occupy. Commonly, 10% - 20% is added on to the “Usable Square Feet” (or actual) square footage to come up with a “Rentable Square Feet” (Usable + Load Factor). Load factors are not used in buildings that don’t have a common area such as Retail and Industrial spaces, but is more often found in Office or Medical space. The formula is: Usable Square feet x Load Factor = Rentable Square Feet For example, if a tenant measures 1,000 SF of space they are renting, but the load factor in the building is 15%, the tenant will pay rent for 1,150 SF (1,000 USF *1.15 = 1,150 RSF) to include their proportionate share of the common areas of the building. TI - Tenant Improvement: TI (tenant improvements) is the customized alterations made to rental space as part of a lease agreement, in order to configure the space for the needs of that particular tenant. Tenant improvements (TI’s) are negotiated by your broker to determine how much the Landlord will pay or contribute, and how much the tenant will pay or contribute towards the TI. There are many variables that will determine how much the Landlord will pay including Landlord financial ability, asset type, lease length, as well as other factors the tenant is attempting to negotiate on such as free rent or reduced rent. 1st vs 2nd generation space: A 1st generation space is either a space that has not been built out for the specialty use, or is an empty shell without walls, drop ceilings, flooring, HVAC, electrical, or plumbing. 2nd generation space, or “2nd gen”, is commonly used to describe specialty use TI that is already built out by a previous tenant such as a restaurant, hair salon, or medical space. For tenants on a budget, it is often cost prohibitive to build out a specialty use TI into a 1st generation space, and is less expensive to find a 2nd generation space for specialty use tenants which only requires cosmetic improvements. Raw shell vs Vanilla shell: The term Raw shell refers to a space that consists of a concrete or dirt floor, wall studs but no insulation or sheet rock, exposed ceiling with or without electrical brought into the space, and often without plumbing or HVAC. This is often found in new construction buildings. The term Vanilla Shell refers a basic structure built out in the rental space. This typically includes sheetrock and taped walls ready to paint, electrical panel, a concrete floor, construction lighting, HVAC without duct work, stubbed plumbing but no fixtures. NOI: Net operating income (NOI) is a calculation used to analyze the profitability of income-generating Commercial real estate investments. NOI equals revenue minus all operating expenses that are not reimbursed to the landlord. CAP rate: A Cap rate (or Capitalization Rate), is a percentage measurement used to compare the rates of return on commercial real estate properties. Cap rates are calculated by dividing the property’s net operating income (NOI) from its property asset value. Parking Ratio: A parking ratio is the total ratio of the rentable square footage of a building to the total number of parking spots of that building. This ratio is a calculation of parking spots per 1,000 square feet of space leased. For example, a parking ratio of 1:1000 (one per thousand), this means that you will be allotted 1 parking stall for every 1,000 SF of space leased. In the example of a parking ratio of 3:1000, you would lease 1,000 SF of space, and you would be allotted 3 parking spaces. Vacancy Rate: The vacancy rate is the percentage of all available square footage in a Commercial rental property that is vacant or unoccupied at a particular time. On a larger scale, vacancy rates are used to measure the health of a rental market. Overall Vacancy rates of 10 – 12% indicates a healthy balance of Tenants looking for space, and vacant space available. If rates are over 12%, it becomes a Tenant market with more space available than tenants. Tenants often have more negotiating power in this environment. Vacancy rates under 10% are a Landlord’s market, where there are fewer options to lease than there are tenants. Landlords often have a negotiating advantage when vacancies are in the single digit range. Class A, B, C Buildings – Although there is not a clearly defined differentiation between A, B, and C properties, and it is rather subjective, the following is a lose delineation between the three types. Class A buildings are considered a top-tier property. These properties are typically newly constructed and/or well maintained, are multiple stories high with a retail component, and command top dollar whether leasing or purchasing. Class B buildings are a step-down from Class A buildings. They are typically older or and may have once been a Class A property but now have older surface materials. They could also be a smaller new construction building (under 4 stories) and without a retail component. Class C buildings are typically older, will show visible signs of deterioration and deferred maintenance. Melissa Johnson/KW Commercial is committed to providing our clients with world-class service, experience, and expert industry insights to help generate substantial returns. Our team’s collective success over the years has been built on this formula. We look forward to the opportunity to help you reach your commercial real estate buying, selling, or leasing goals.

Key takeaways: Monetary policy continues to loosen, we are in the relatively early stages of a rate-cutting cycle, and inflation has eased down to a more reasonable and manageable level. Recently established CRE trends including the growth of the digital economy, the work-from-home trend, the greening of CRE, and the rehabbing and repurposing of retail space will continue. There are long-term CRE investment opportunities in multifamily, data centers, industrial real estate and senior housing. There is an emerging opportunity in hospitality that should be viable through 2025, but is more cyclical in nature.

Late last year, many were predicting a new growth cycle for the U.S. Industrial Commercial Real Estate (CRE) market. For example, in December when CBRE published its 2025 U.S. Real Estate Market Outlook, they predicted that the U.S. industrial market would enter a new cycle in 2025 with a return to pre-pandemic demand drivers. They said industrial occupiers would start focusing on longer-term strategies to improve warehouse efficiency and ensure supply chain resiliency. And that demand for newly constructed space would drive up the vacancy rate of older buildings. At that time, few anticipated the level of uncertainty that would ensue in the wake of changing U.S. economic and trade policies. As of May 2025, the U.S. and China had paused their retaliatory tariffs for 90-days, leaving a 30% levy that the U.S. is now imposing on Chinese goods. However, businesses and investors must contend with uncertainty about whether the truce will last. But this situation is only part of a broader scenario in which dozens of other countries await news from the White House regarding revised tariff rates that will follow the current 90-day pause. The result is already reshaping the global supply chain and logistic networks, starting with the slowing flow of goods into the U.S. The Port of Los Angeles, for instance, has seen a 35% drop in arriving cargo vessels as of the 2nd week in May 2025 vs. the same week a year earlier. The disruption goes beyond the here and now; the inability to plan into the months ahead makes the situation at the ports a guessing game for labor and planning, including the scheduling of dockworkers, heavy equipment operators, and trucking services. According to Gene Seroka, executive director of the Port of Los Angeles, “As far as forecasting, with the whipsaw effect of information that’s been coming out of Washington — the reprieve of 90 days, the changes with electronics and auto parts, and maybe some retail in the middle of that — it’s really hard to forecast.” As disruptions trigger a ripple effect across industries worldwide, the global supply chain is positioning itself for major transformation. With markets in flux, the National Association for Industrial and Office Parks (NAIOP) reports that many companies are pausing investment and deferring major decisions, including whether and where to lease industrial space. At this point, experienced CRE industry professionals must rely on their knowledge — guided by the cyclical history of CRE, day-by-day data analysis, the latest intelligence, and some instinct. Let’s take a look at just some of the ways this may all unfold — and what it could mean specifically for industrial CRE. Industrial Leasing and Tenant Demand The industrial leasing market has been steady but cautious as tenants digest the tariff news. Key leasing trends include: Lease renewal over expansion — Many companies have delayed new warehouse expansions or relocations, opting instead to renew existing space until tariff outcomes are clear. CBRE recently reported that industrial construction slowed while industrial leasing held steady at about 180M square feet in Q1 of 2025. Rise of third-party logistics (3PL) demand — Amid trade policy uncertainty, CBRE sees some industrial occupiers outsourcing to 3PL providers. As more businesses rely on them, these providers will, in turn, take on a larger share of leasing activity. Vacancy tick-up — Even with solid leasing deals, overall vacancy has crept upward — due in part to new supply hitting the market. CBRE reported a 20 basis-point rise in national vacancy to about 6.3% in Q1 2025 — the highest level since 2014. Potentially slower economic growth would also weaken fundamentals across property types, leading to higher vacancy rates, and be a headwind for investment activity. However, this may be partially offset by lower long-term interest rates and cheaper debt costs. Modest net absorption — With some tenants on hold, net absorption is subdued. For example, CBRE cites just 23.3 million square foot of positive net absorption in Q1 2025, which is modest compared to earlier peaks. In summary, leasing activity so far in 2025 is underpinned by tentative demand: occupiers are holding off on major expansions, while 3PLs and domestic distributors lead tenant activity in the interim. Construction Activity and Costs Tariffs are also crimping the development pipeline and construction budgets for Industrial, with the result being a rise in material prices and project delays: Higher material costs — New levies on steel, lumber, equipment and other inputs will increase construction expenses. CBRE estimates that the tariffs announced in April 2025 could inflate overall commercial construction costs by roughly 5%. Projects on hold and a shrinking pipeline — Faced with cost uncertainty, many developers are pausing or scaling back new projects. Groundbreaking of some developments may be put off as builders re-evaluate feasibility under higher-cost scenarios. JLL notes that U.S. industrial projects under construction totaled about 253 million square foot by Q1 — roughly 30% less than a year earlier and the lowest pipeline level since 2015. According to CBRE, in Q1 alone just 64.6M square foot of new industrial space was completed, the weakest quarterly delivery tally since 2018. In many markets, construction starts are near decade-lows as speculative projects are deferred. Supply chain delays — Tariffs and trade disruptions are also affecting the supply chain for construction itself. The NAIOP Research Foundation notes that companies are carrying higher inventories of building materials to buffer tariffs, but near-term shortages or shipping delays appear possible. For example, surcharges on Chinese-built ships and other fees have effectively reduced freight capacity to U.S. ports, which could slow shipments of steel and equipment and delay project timelines. Overall, industrial remains the strongest corner of the market. The consensus is that industrial and multifamily will lead any recovery in investment activity. However, many are factoring in a premium for uncertainty; one recent summary noted that tariffs were already “reducing the strength” of CBRE’s incoming business pipeline. In practice, transaction volumes have slowed slightly in Q1-Q2 as buyers and sellers price in trade risk. Still, global allocators with limited U.S. exposure are actively looking to enter the industrial sector. Outlook: Reshoring and Opportunities Ecommerce and manufacturing reshoring continues to underpin demand for warehouses and factories. Key drivers for this rebound include: Reshoring of manufacturing — A number of companies are moving production back to North America to avoid high tariffs and improve supply resilience. New factory and processing facility needs (like semiconductors, electric vehicles [EVs]), pharma and food processing) will drive fresh demand for industrial land and buildings. Nearshoring and trade deals — Even before the 2025 tariffs, firms were planning to source more regionally. A 2023 Accenture study found that by 2026 about 65% of companies intend to buy key inputs from regional suppliers, a significant increase from the current 38%. This shift reflects a broader trend of companies seeking to become more resilient to supply chain disruptions by diversifying their sourcing and production. Technological and Green transformations — With competition growing in industrial CRE, some landlords are repositioning assets with sustainability upgrades or flexible layouts. Energy-efficient space that provides automation, robotics, etc., remains attractive to cautious tenants during economic uncertainty. Conclusion The current uncertainty around tariffs has produced some challenges for industrial CRE — the possibilities of slow leasing growth, combined with rising construction costs, is adding risk to underwriting. However, there may still be reason for optimism. When the tariff situation is resolved, the underlying fundamentals — low vacancy in core regions, rising regional manufacturing, and e-commerce growth — are likely to lead to growth in the industrial market.

Leveraging artificial intelligence Trends in business is not new. Using machine learning (ML) and language processing across a range of functional areas and skill sets has been in practice for decades’ However, that traditional scope has had limitations, leaving more creative disciplines to human thinking. The emergence of generative AI has shifted our thinking—with use cases demonstrating that the automation of creativity and imagination could be a reality sooner than may have been anticipated . READ the rest of the story here: https://www2.deloitte.com/us/en/insights/industry/financial-services/generative-ai-in-real-estate-benefits.html

Commercial Real Estate Terms You Need to Know Buying or Leasing Commercial Real Estate is one of the biggest expenses incurred by your business. When leasing or buying commercial real estate, the vocabulary can be intimidating and confusing at first. Whether you need a small retail shop or a large warehouse, a basic understanding of common Commercial Real Estate industry terms used will help you better understand the process. If you are ready to dive into buying or leasing commercial real estate, I’ve outlined key commercial real estate terms that you’ll need to know. Becoming familiar with some basic terminology will untangle the confusing process and help you make informed decisions. First things first, what is Commercial Real Estate? Commercial Real Estate includes all buying, selling, and leasing of any Commercial property that is used or zoned for purposes such as Retail, Industrial, Office, Medical, Multifamily of 4 units or more, and Commercial Land. What are the different types of Leases? FSG- Full-Service Gross Lease: A Full-Service Gross lease includes the base rent and other building operating expenses, including janitorial service, utilities, maintenance and repairs, building insurance and property tax, and common area maintenance (CAM). None of the additional services are charged as additional rent. You pay a base rent amount only. MG – Modified Gross Lease: A Modified Gross lease is essentially the same as a FSG lease where the tenant pays base rent, but with an MG lease, the tenant also pays additional costs associated with the property such as: janitorial, a utility bill(s), or garbage. NNN – Triple Net Lease: A Triple Net Lease (NNN) is an agreement where the tenant pays their proportionate share of building expenses called Nets and include real estate taxes, building insurance, and Common Area Maintenance (CAM). The tenant pays for the above named monthly NNN expenses, plus base rent, plus utilities. Load factor: This is a calculation used in buildings that have common areas such as hallways, bathrooms, entry, common conference rooms to determine how much of the building these areas occupy. That percentage of the building is called a load factor. In buildings where tenants also use a common area, there is a load factor added onto the square footage of space they occupy. Commonly, 10% - 20% is added on to the “Usable Square Feet” (or actual) square footage to come up with a “Rentable Square Feet” (Usable + Load Factor). Load factors are not used in buildings that don’t have a common area such as Retail and Industrial spaces, but is more often found in Office or Medical space. The formula is: Usable Square feet x Load Factor = Rentable Square Feet For example, if a tenant measures 1,000 SF of space they are renting, but the load factor in the building is 15%, the tenant will pay rent for 1,150 SF (1,000 USF *1.15 = 1,150 RSF) to include their proportionate share of the common areas of the building. TI - Tenant Improvement: TI (tenant improvements) is the customized alterations made to rental space as part of a lease agreement, in order to configure the space for the needs of that particular tenant. Tenant improvements (TI’s) are negotiated by your broker to determine how much the Landlord will pay or contribute, and how much the tenant will pay or contribute towards the TI. There are many variables that will determine how much the Landlord will pay including Landlord financial ability, asset type, lease length, as well as other factors the tenant is attempting to negotiate on such as free rent or reduced rent. 1st vs 2nd generation space: A 1st generation space is either a space that has not been built out for the specialty use, or is an empty shell without walls, drop ceilings, flooring, HVAC, electrical, or plumbing. 2nd generation space, or “2nd gen”, is commonly used to describe specialty use TI that is already built out by a previous tenant such as a restaurant, hair salon, or medical space. For tenants on a budget, it is often cost prohibitive to build out a specialty use TI into a 1st generation space, and is less expensive to find a 2nd generation space for specialty use tenants which only requires cosmetic improvements. Raw shell vs Vanilla shell: The term Raw shell refers to a space that consists of a concrete or dirt floor, wall studs but no insulation or sheet rock, exposed ceiling with or without electrical brought into the space, and often without plumbing or HVAC. This is often found in new construction buildings. The term Vanilla Shell refers a basic structure built out in the rental space. This typically includes sheetrock and taped walls ready to paint, electrical panel, a concrete floor, construction lighting, HVAC without duct work, stubbed plumbing but no fixtures. NOI: Net operating income (NOI) is a calculation used to analyze the profitability of income-generating Commercial real estate investments. NOI equals revenue minus all operating expenses that are not reimbursed to the landlord. CAP rate: A Cap rate (or Capitalization Rate), is a percentage measurement used to compare the rates of return on commercial real estate properties. Cap rates are calculated by dividing the property’s net operating income (NOI) from its property asset value. Parking Ratio: A parking ratio is the total ratio of the rentable square footage of a building to the total number of parking spots of that building. This ratio is a calculation of parking spots per 1,000 square feet of space leased. For example, a parking ratio of 1:1000 (one per thousand), this means that you will be allotted 1 parking stall for every 1,000 SF of space leased. In the example of a parking ratio of 3:1000, you would lease 1,000 SF of space, and you would be allotted 3 parking spaces. Vacancy Rate: The vacancy rate is the percentage of all available square footage in a Commercial rental property that is vacant or unoccupied at a particular time. On a larger scale, vacancy rates are used to measure the health of a rental market. Overall Vacancy rates of 10 – 12% indicates a healthy balance of Tenants looking for space, and vacant space available. If rates are over 12%, it becomes a Tenant market with more space available than tenants. Tenants often have more negotiating power in this environment. Vacancy rates under 10% are a Landlord’s market, where there are fewer options to lease than there are tenants. Landlords often have a negotiating advantage when vacancies are in the single digit range. Class A, B, C Buildings – Although there is not a clearly defined differentiation between A, B, and C properties, and it is rather subjective, the following is a lose delineation between the three types. Class A buildings are considered a top-tier property. These properties are typically newly constructed and/or well maintained, are multiple stories high with a retail component, and command top dollar whether leasing or purchasing. Class B buildings are a step-down from Class A buildings. They are typically older or and may have once been a Class A property but now have older surface materials. They could also be a smaller new construction building (under 4 stories) and without a retail component. Class C buildings are typically older, will show visible signs of deterioration and deferred maintenance. Melissa Johnson/KW Commercial is committed to providing our clients with world-class service, experience, and expert industry insights to help generate substantial returns. Our team’s collective success over the years has been built on this formula. We look forward to the opportunity to help you reach your commercial real estate buying, selling, or leasing goals.

Key takeaways: Monetary policy continues to loosen, we are in the relatively early stages of a rate-cutting cycle, and inflation has eased down to a more reasonable and manageable level. Recently established CRE trends including the growth of the digital economy, the work-from-home trend, the greening of CRE, and the rehabbing and repurposing of retail space will continue. There are long-term CRE investment opportunities in multifamily, data centers, industrial real estate and senior housing. There is an emerging opportunity in hospitality that should be viable through 2025, but is more cyclical in nature.

Late last year, many were predicting a new growth cycle for the U.S. Industrial Commercial Real Estate (CRE) market. For example, in December when CBRE published its 2025 U.S. Real Estate Market Outlook, they predicted that the U.S. industrial market would enter a new cycle in 2025 with a return to pre-pandemic demand drivers. They said industrial occupiers would start focusing on longer-term strategies to improve warehouse efficiency and ensure supply chain resiliency. And that demand for newly constructed space would drive up the vacancy rate of older buildings. At that time, few anticipated the level of uncertainty that would ensue in the wake of changing U.S. economic and trade policies. As of May 2025, the U.S. and China had paused their retaliatory tariffs for 90-days, leaving a 30% levy that the U.S. is now imposing on Chinese goods. However, businesses and investors must contend with uncertainty about whether the truce will last. But this situation is only part of a broader scenario in which dozens of other countries await news from the White House regarding revised tariff rates that will follow the current 90-day pause. The result is already reshaping the global supply chain and logistic networks, starting with the slowing flow of goods into the U.S. The Port of Los Angeles, for instance, has seen a 35% drop in arriving cargo vessels as of the 2nd week in May 2025 vs. the same week a year earlier. The disruption goes beyond the here and now; the inability to plan into the months ahead makes the situation at the ports a guessing game for labor and planning, including the scheduling of dockworkers, heavy equipment operators, and trucking services. According to Gene Seroka, executive director of the Port of Los Angeles, “As far as forecasting, with the whipsaw effect of information that’s been coming out of Washington — the reprieve of 90 days, the changes with electronics and auto parts, and maybe some retail in the middle of that — it’s really hard to forecast.” As disruptions trigger a ripple effect across industries worldwide, the global supply chain is positioning itself for major transformation. With markets in flux, the National Association for Industrial and Office Parks (NAIOP) reports that many companies are pausing investment and deferring major decisions, including whether and where to lease industrial space. At this point, experienced CRE industry professionals must rely on their knowledge — guided by the cyclical history of CRE, day-by-day data analysis, the latest intelligence, and some instinct. Let’s take a look at just some of the ways this may all unfold — and what it could mean specifically for industrial CRE. Industrial Leasing and Tenant Demand The industrial leasing market has been steady but cautious as tenants digest the tariff news. Key leasing trends include: Lease renewal over expansion — Many companies have delayed new warehouse expansions or relocations, opting instead to renew existing space until tariff outcomes are clear. CBRE recently reported that industrial construction slowed while industrial leasing held steady at about 180M square feet in Q1 of 2025. Rise of third-party logistics (3PL) demand — Amid trade policy uncertainty, CBRE sees some industrial occupiers outsourcing to 3PL providers. As more businesses rely on them, these providers will, in turn, take on a larger share of leasing activity. Vacancy tick-up — Even with solid leasing deals, overall vacancy has crept upward — due in part to new supply hitting the market. CBRE reported a 20 basis-point rise in national vacancy to about 6.3% in Q1 2025 — the highest level since 2014. Potentially slower economic growth would also weaken fundamentals across property types, leading to higher vacancy rates, and be a headwind for investment activity. However, this may be partially offset by lower long-term interest rates and cheaper debt costs. Modest net absorption — With some tenants on hold, net absorption is subdued. For example, CBRE cites just 23.3 million square foot of positive net absorption in Q1 2025, which is modest compared to earlier peaks. In summary, leasing activity so far in 2025 is underpinned by tentative demand: occupiers are holding off on major expansions, while 3PLs and domestic distributors lead tenant activity in the interim. Construction Activity and Costs Tariffs are also crimping the development pipeline and construction budgets for Industrial, with the result being a rise in material prices and project delays: Higher material costs — New levies on steel, lumber, equipment and other inputs will increase construction expenses. CBRE estimates that the tariffs announced in April 2025 could inflate overall commercial construction costs by roughly 5%. Projects on hold and a shrinking pipeline — Faced with cost uncertainty, many developers are pausing or scaling back new projects. Groundbreaking of some developments may be put off as builders re-evaluate feasibility under higher-cost scenarios. JLL notes that U.S. industrial projects under construction totaled about 253 million square foot by Q1 — roughly 30% less than a year earlier and the lowest pipeline level since 2015. According to CBRE, in Q1 alone just 64.6M square foot of new industrial space was completed, the weakest quarterly delivery tally since 2018. In many markets, construction starts are near decade-lows as speculative projects are deferred. Supply chain delays — Tariffs and trade disruptions are also affecting the supply chain for construction itself. The NAIOP Research Foundation notes that companies are carrying higher inventories of building materials to buffer tariffs, but near-term shortages or shipping delays appear possible. For example, surcharges on Chinese-built ships and other fees have effectively reduced freight capacity to U.S. ports, which could slow shipments of steel and equipment and delay project timelines. Overall, industrial remains the strongest corner of the market. The consensus is that industrial and multifamily will lead any recovery in investment activity. However, many are factoring in a premium for uncertainty; one recent summary noted that tariffs were already “reducing the strength” of CBRE’s incoming business pipeline. In practice, transaction volumes have slowed slightly in Q1-Q2 as buyers and sellers price in trade risk. Still, global allocators with limited U.S. exposure are actively looking to enter the industrial sector. Outlook: Reshoring and Opportunities Ecommerce and manufacturing reshoring continues to underpin demand for warehouses and factories. Key drivers for this rebound include: Reshoring of manufacturing — A number of companies are moving production back to North America to avoid high tariffs and improve supply resilience. New factory and processing facility needs (like semiconductors, electric vehicles [EVs]), pharma and food processing) will drive fresh demand for industrial land and buildings. Nearshoring and trade deals — Even before the 2025 tariffs, firms were planning to source more regionally. A 2023 Accenture study found that by 2026 about 65% of companies intend to buy key inputs from regional suppliers, a significant increase from the current 38%. This shift reflects a broader trend of companies seeking to become more resilient to supply chain disruptions by diversifying their sourcing and production. Technological and Green transformations — With competition growing in industrial CRE, some landlords are repositioning assets with sustainability upgrades or flexible layouts. Energy-efficient space that provides automation, robotics, etc., remains attractive to cautious tenants during economic uncertainty. Conclusion The current uncertainty around tariffs has produced some challenges for industrial CRE — the possibilities of slow leasing growth, combined with rising construction costs, is adding risk to underwriting. However, there may still be reason for optimism. When the tariff situation is resolved, the underlying fundamentals — low vacancy in core regions, rising regional manufacturing, and e-commerce growth — are likely to lead to growth in the industrial market.

Leveraging artificial intelligence Trends in business is not new. Using machine learning (ML) and language processing across a range of functional areas and skill sets has been in practice for decades’ However, that traditional scope has had limitations, leaving more creative disciplines to human thinking. The emergence of generative AI has shifted our thinking—with use cases demonstrating that the automation of creativity and imagination could be a reality sooner than may have been anticipated . READ the rest of the story here: https://www2.deloitte.com/us/en/insights/industry/financial-services/generative-ai-in-real-estate-benefits.html

Commercial Real Estate Terms You Need to Know Buying or Leasing Commercial Real Estate is one of the biggest expenses incurred by your business. When leasing or buying commercial real estate, the vocabulary can be intimidating and confusing at first. Whether you need a small retail shop or a large warehouse, a basic understanding of common Commercial Real Estate industry terms used will help you better understand the process. If you are ready to dive into buying or leasing commercial real estate, I’ve outlined key commercial real estate terms that you’ll need to know. Becoming familiar with some basic terminology will untangle the confusing process and help you make informed decisions. First things first, what is Commercial Real Estate? Commercial Real Estate includes all buying, selling, and leasing of any Commercial property that is used or zoned for purposes such as Retail, Industrial, Office, Medical, Multifamily of 4 units or more, and Commercial Land. What are the different types of Leases? FSG- Full-Service Gross Lease: A Full-Service Gross lease includes the base rent and other building operating expenses, including janitorial service, utilities, maintenance and repairs, building insurance and property tax, and common area maintenance (CAM). None of the additional services are charged as additional rent. You pay a base rent amount only. MG – Modified Gross Lease: A Modified Gross lease is essentially the same as a FSG lease where the tenant pays base rent, but with an MG lease, the tenant also pays additional costs associated with the property such as: janitorial, a utility bill(s), or garbage. NNN – Triple Net Lease: A Triple Net Lease (NNN) is an agreement where the tenant pays their proportionate share of building expenses called Nets and include real estate taxes, building insurance, and Common Area Maintenance (CAM). The tenant pays for the above named monthly NNN expenses, plus base rent, plus utilities. Load factor: This is a calculation used in buildings that have common areas such as hallways, bathrooms, entry, common conference rooms to determine how much of the building these areas occupy. That percentage of the building is called a load factor. In buildings where tenants also use a common area, there is a load factor added onto the square footage of space they occupy. Commonly, 10% - 20% is added on to the “Usable Square Feet” (or actual) square footage to come up with a “Rentable Square Feet” (Usable + Load Factor). Load factors are not used in buildings that don’t have a common area such as Retail and Industrial spaces, but is more often found in Office or Medical space. The formula is: Usable Square feet x Load Factor = Rentable Square Feet For example, if a tenant measures 1,000 SF of space they are renting, but the load factor in the building is 15%, the tenant will pay rent for 1,150 SF (1,000 USF *1.15 = 1,150 RSF) to include their proportionate share of the common areas of the building. TI - Tenant Improvement: TI (tenant improvements) is the customized alterations made to rental space as part of a lease agreement, in order to configure the space for the needs of that particular tenant. Tenant improvements (TI’s) are negotiated by your broker to determine how much the Landlord will pay or contribute, and how much the tenant will pay or contribute towards the TI. There are many variables that will determine how much the Landlord will pay including Landlord financial ability, asset type, lease length, as well as other factors the tenant is attempting to negotiate on such as free rent or reduced rent. 1st vs 2nd generation space: A 1st generation space is either a space that has not been built out for the specialty use, or is an empty shell without walls, drop ceilings, flooring, HVAC, electrical, or plumbing. 2nd generation space, or “2nd gen”, is commonly used to describe specialty use TI that is already built out by a previous tenant such as a restaurant, hair salon, or medical space. For tenants on a budget, it is often cost prohibitive to build out a specialty use TI into a 1st generation space, and is less expensive to find a 2nd generation space for specialty use tenants which only requires cosmetic improvements. Raw shell vs Vanilla shell: The term Raw shell refers to a space that consists of a concrete or dirt floor, wall studs but no insulation or sheet rock, exposed ceiling with or without electrical brought into the space, and often without plumbing or HVAC. This is often found in new construction buildings. The term Vanilla Shell refers a basic structure built out in the rental space. This typically includes sheetrock and taped walls ready to paint, electrical panel, a concrete floor, construction lighting, HVAC without duct work, stubbed plumbing but no fixtures. NOI: Net operating income (NOI) is a calculation used to analyze the profitability of income-generating Commercial real estate investments. NOI equals revenue minus all operating expenses that are not reimbursed to the landlord. CAP rate: A Cap rate (or Capitalization Rate), is a percentage measurement used to compare the rates of return on commercial real estate properties. Cap rates are calculated by dividing the property’s net operating income (NOI) from its property asset value. Parking Ratio: A parking ratio is the total ratio of the rentable square footage of a building to the total number of parking spots of that building. This ratio is a calculation of parking spots per 1,000 square feet of space leased. For example, a parking ratio of 1:1000 (one per thousand), this means that you will be allotted 1 parking stall for every 1,000 SF of space leased. In the example of a parking ratio of 3:1000, you would lease 1,000 SF of space, and you would be allotted 3 parking spaces. Vacancy Rate: The vacancy rate is the percentage of all available square footage in a Commercial rental property that is vacant or unoccupied at a particular time. On a larger scale, vacancy rates are used to measure the health of a rental market. Overall Vacancy rates of 10 – 12% indicates a healthy balance of Tenants looking for space, and vacant space available. If rates are over 12%, it becomes a Tenant market with more space available than tenants. Tenants often have more negotiating power in this environment. Vacancy rates under 10% are a Landlord’s market, where there are fewer options to lease than there are tenants. Landlords often have a negotiating advantage when vacancies are in the single digit range. Class A, B, C Buildings – Although there is not a clearly defined differentiation between A, B, and C properties, and it is rather subjective, the following is a lose delineation between the three types. Class A buildings are considered a top-tier property. These properties are typically newly constructed and/or well maintained, are multiple stories high with a retail component, and command top dollar whether leasing or purchasing. Class B buildings are a step-down from Class A buildings. They are typically older or and may have once been a Class A property but now have older surface materials. They could also be a smaller new construction building (under 4 stories) and without a retail component. Class C buildings are typically older, will show visible signs of deterioration and deferred maintenance. Melissa Johnson/KW Commercial is committed to providing our clients with world-class service, experience, and expert industry insights to help generate substantial returns. Our team’s collective success over the years has been built on this formula. We look forward to the opportunity to help you reach your commercial real estate buying, selling, or leasing goals.

Key takeaways: Monetary policy continues to loosen, we are in the relatively early stages of a rate-cutting cycle, and inflation has eased down to a more reasonable and manageable level. Recently established CRE trends including the growth of the digital economy, the work-from-home trend, the greening of CRE, and the rehabbing and repurposing of retail space will continue. There are long-term CRE investment opportunities in multifamily, data centers, industrial real estate and senior housing. There is an emerging opportunity in hospitality that should be viable through 2025, but is more cyclical in nature.