Research & Market Insights

Houston, TX Industrial Market Report Q1 2026

Houston’s industrial market showed mixed performance in Q1 2026, as solid leasing activity was offset by rising vacancy and slowing rent growth. Net absorption totaled 3.2 million SF, improving from 2025 but still trailing deliveries. Leasing remains above historical norms, driven by large-format users prioritizing modern facilities. Vacancy reached 7.4%, increasing as supply continues to outpace demand, particularly in big-box assets. Older properties are facing hurdles as tenants shift to newer space. Rent growth slowed to 1.3% annually, with concessions becoming more common. Concessions have expanded meaningfully, including increased free rent and tenant improvement packages, particularly for large spaces. While asking rents remain elevated relative to historical levels, landlord pricing power has weakened. Overall, market conditions are transitioning toward equilibrium, with tenants gaining leverage in lease negotiations. Key Findings Vacancy continued to rise as sustained supply deliveries outpaced demand, with additional upward pressure expected near term. Leasing activity remains healthy overall, but a clear flight-to-quality trend is reshaping demand toward newer, large-format assets. Elevated construction and growing concessions are tempering rent growth, signaling a more tenant-favorable environment. Houston Industrial Supply & Demand Dynamics Source: CoStar Group, Inc. Houston Demographics Source: CoStar Group, Inc. Unemployment Rate: 4.6% Households: 2,836,320 Current Population: 7,946,883 Median Household Income: $84,000 Houston’s economic backdrop remains supportive of long-term industrial demand, though near-term risks are increasing. The metro has added substantial population over the past several years, supporting household formation and consumption patterns that underpin logistics demand. Its role as a major distribution hub continues to expand, driven by port activity and global trade flows, particularly in energy-related exports such as polymers. Employment growth across manufacturing, logistics, and trade sectors has reinforced space needs, especially among large national users. Tenant decision timelines are lengthening, reflecting a more deliberate approach to expansion. Overall, the macro environment continues to support industrial fundamentals, but momentum has moderated compared with prior years. Houston leads the nation in exports with $180.9B in goods and commodities sent abroad last year. 2025 | Source: Greater Houston Partnership Top Metro Employment by Occupation 2025 | Source: Greater Houston Partnership Houston Industrial Construction Development remains elevated, with 29 million SF underway and 4.5 million SF delivered in Q1. The pipeline is heavily concentrated in speculative, large-format logistics properties, much of which remains unleased. Inventory expansion in buildings over 100,000 SF has significantly increased supply in recent years. New development is concentrated in suburban and port-adjacent submarkets, where availability is highest. This has extended lease-up timelines, particularly for larger assets. In contrast, small-bay construction remains limited, supporting tighter conditions in that segment. Despite financing challenges, Houston continues to see strong development activity. The large volume of unleased space is expected to increase vacancy through 2026. SF Construction Starts Source: CoStar Group, Inc. SF Under Construction Source: CoStar Group, Inc. Houston Industrial Sales Houston’s industrial market posted a sales volume of $77.1M in Q1 2026. Sales Volume Source: CoStar Group, Inc. By the Numbers Source: CoStar Group Inc. Sales Volume: $77.1M Cap Rate: 7.7% Vacancy Rate: 7.4% Rent Growth: 1.3% SF Under Construction: 29M SF Delivered: 4.5M SF Absorbed: 3.2M

Doc Perrier

First Vice President & Director

4/14/26

Austin, TX Medical Office Market Report Q1 2026

Austin’s Medical Office Market continued to show signs of stabilization in Q1 2026 as the sector moved further away from the supply-driven pressure of prior years. While vacancy remained elevated at 12.2%, the market still posted 1.7% year-over-year rent growth, indicating that fundamentals are beginning to improve. At the same time, investment activity remained active with 34 sales recorded during the quarter, while the development pipeline stayed well below the levels seen throughout 2023 and 2024. Taken together, these trends suggest the market is gradually regaining balance as supply pressures ease and overall performance becomes more stable. This continued moderation in new supply should help support healthier leasing conditions and more sustained market improvement in the quarters ahead. Key Findings Stabilizing Market Conditions: Austin’s medical office market showed signs of improving balance in Q1 2026, with 12.2% vacancy, 1.7% year-over-year rent growth, and a lower construction pipeline supporting more stable fundamentals. Reduced Development Pipeline: Construction activity totaled 131,005 SF, remaining well below the much higher levels seen throughout 2023 and 2024, easing future supply pressure. Stable Investment Activity: The market recorded 34 sales at an average 6.0% cap rate, reflecting continued investor interest and relatively stable pricing despite still-elevated vacancy levels. Houston Demographics Source: CoStar Group, Inc. Unemployment Rate: 3.6% Households: 1,094,265 Current Population: 2,616,899 Median Household Income: $103,006 Rents Average asking rent reached $38.26 per SF in Q1 2026, with 1.7% year-over-year growth, highlights continued rent increases even as the market worked through elevated vacancy. That growth suggests landlord pricing has remained relatively stable despite broader occupancy pressure, and in a market recovering from heavy deliveries, even modest gains are still meaningful. With construction activity now well below prior peaks, Austin’s medical office market is better positioned to support steadier, healthier, more durable, and more sustainable rent growth moving forward. Market Asking Rent Per SF Source: CoStar Group, Inc. Vacancy Vacancy reached 12.2% in Q1 2026, remaining elevated as the market continues to absorb new supply delivered over the past several years. Leasing activity remained modest, with 852 SF of positive absorption recorded during the quarter, indicating that demand is still present but not yet strong enough to rapidly compress vacancy. However, with construction activity slowing considerably, the pace of new deliveries is no longer putting additional upward pressure on vacancy. Vacancy Rate Source: CoStar Group, Inc. Construction Construction activity totaled 131,005 SF in Q1 2026, reflecting a slight increase from the prior quarter but remaining significantly below historical levels. The development pipeline has declined sharply from the 300K-700K+ SF range seen throughout 2022-2024, signaling a clear pullback in new projects. This sustained slowdown in construction reduces future supply pressure and allows existing space more time to lease. SF Under Construction Source: CoStar Group, Inc. Sales Sales activity remained steady in Q1 2026, with 34 transactions recorded and an average 6.0% cap rate, indicating continued investor interest in Austin’s medical office sector. Despite elevated vacancy, pricing has held relatively stable, reflecting confidence in the market’s long-term fundamentals. Deal volume at this level suggests buyers remain active and willing to transact, particularly as improving supply conditions create a more favorable outlook. Overall, the investment market continues to demonstrate resilience and stability heading into the remainder of the year. Cap Rate Source: CoStar Group, Inc. By the Numbers Q1 2026 | Source: CoStar Group, Inc. # of Sales: 34 Sales Growth (QOQ): 25.0% Price Per SF: $299 Vacancy Rate: 12.2% Rent Growth: 1.7% Asking Rent Per SF: $38.26 SF Under Construction: 131K SF Delivered: – SF Absorbed: 852

Andrew Richmond

Senior Associate

4/14/26

Houston, TX Medical Office Market Report Q1 2026

Houston’s medical office market is showing early signs of stabilization in Q1 2026 following a supply-driven softening throughout 2025. Vacancy remains elevated at 18.3%, though improving tenant demand is evident, with absorption of 140,104 SF outpacing 119,591 SF of new deliveries. This trend highlights continued occupier resilience even as the market works through recent supply additions. Construction activity has moderated significantly to 367,535 SF, helping to ease future supply pressure. Asking rents have softened slightly to $29.73 per SF, reflecting a -0.4% year-over-year decline and a shift toward more measured growth. Investment activity remains steady, with 71 sales at a 7.0% cap rate and pricing around $299 per SF, underscoring continued investor interest in the sector. Key Findings Market Vacancy and Demand: Vacancy remains elevated at 18.3% but is showing early signs of stabilization, as absorption continues to outpace new deliveries. Improving demand is helping support occupancy and contributing to a gradual market adjustment. Rent Trends and Pricing: Vacancy remains elevated at 18.3% but is stabilizing as absorption outpaces new deliveries. Asking rents have edged down to $29.73 per SF (-0.4% YOY), while demand continues to support occupancy and rebalance the market. Development and Investment Activity: Construction activity has moderated to 367,535 SF, easing near-term supply pressure, while investment remains active with 71 sales at a 7.0% cap rate and $299 per SF. Capital continues to target well-positioned assets supported by stable demand fundamentals. Houston Demographics Source: CoStar Group, Inc. Unemployment Rate: 4.6% Households: 2,837,188 Current Population: 7,948,642 Median Household Income: $84,038 Rents Asking rents have begun to stabilize heading into Q1 2026 after several years of steady growth. Rates have largely plateaued in the low-$30 per SF range, averaging about $30.20 per SF, with modest fluctuations between the high-$28 and low-$30 range over the past year. This leveling reflects a normalization in pricing as new supply has eased landlord leverage, while rents remain elevated and supported by steady underlying demand. Market Asking Rent Per SF Source: CoStar Group, Inc. Vacancy Vacancy trended upward through 2025, reflecting the impact of new supply on occupancy. After peaking in the mid-15% range, vacancy has begun to stabilize, easing to roughly 14.0% in Q1 2026. While still elevated relative to prior periods, recent declines suggest demand is starting to absorb new deliveries. With improving absorption and a slowing development pipeline, vacancy is expected to continue stabilizing in the near term. Vacancy Rate Source: CoStar Group, Inc. Construction The Houston medical office development pipeline has contracted meaningfully heading into Q1 2026, falling to roughly 367,500 SF, its lowest level in several years. This marks a sharp pullback from peak construction activity near 2.0 million SF in 2023, as developers have scaled back new starts in response to rising vacancy and recent supply additions. The sustained decline throughout 2025 signals a more cautious development environment and a shift toward rebalancing supply and demand. With significantly less space underway, the market is better positioned to absorb existing inventory and stabilize fundamentals in the near term. SF Under Construction Source: CoStar Group, Inc. Sales Transaction activity in the Houston medical office market moderated in Q1 2026, with 71 sales recorded, down from higher levels in prior periods. Despite softer volume, pricing fundamentals remain stable, with assets trading around $299 per SF at a 7.0% cap rate. While capital markets have become more selective, steady pricing suggests investor demand remains intact, with a continued focus on disciplined underwriting and targeted acquisitions. By the Numbers Q1 2026 | Source: CoStar Group, Inc. # of Sales: 71 Cap Rate: 7.0% Price Per SF: $299 Vacancy Rate: 18.3% Rent Growth: -0.4% Asking Rent Per SF: $29.73 SF Under Construction: 368K SF Delivered: 120K SF Absorbed: 140K

Andrew Richmond

Senior Associate

4/10/26

The Return of Risk-Based Multifamily Valuations

Higher interest rates. Rent caps that limit increases. Rising insurance premiums. These forces aren’t just background noise in today’s multifamily market—they suggest that markets are once again factoring risk back into pricing. Valuations now hinge on the volatility of a property’s underlying cost structure and its flexibility to grow revenue. Before COVID, pricing followed a predictable hierarchy, as cheap f inancing and aggressive rent growth pushed values higher. In turn, cap rate spreads compressed, reducing price dispersion across quality tiers. Today, that pricing logic has eroded into a renewed focus on risk-based pricing and wider dispersion amongst asset classes and location fundamentals. Cap rates have held firm amid higher expenses, regulatory limits, and more disciplined rent-growth assumptions. CoStar Group Inc.’s forecast projects modest movement with cap rates stabilizing at 6% through 2026, signaling that the valuation reset is being priced into fundamentals rather than a quick return to cheap debt. Cap rates remain tiered by asset quality, with Class A and B assets clustering in the low-to-mid 5% range while Class C properties often price around 6%. Uniform multifamily pricing is over—dispersion is back. What’s Driving the Reset? The recalibration of valuations between 2023 and 2026 centralizes on the disruption of NOI. Insurance instability, above-yield borrowing costs, and stringent rent control each distinctly strain income performance, widening the bandwidth of operating outcomes investors must price, and pushing cap rate dispersion across asset quality and markets. Insurance Shock and NOI Margin Compression Insurance costs have become a defining variable. Premiums rose about 28% year-over-year as of early 2024, according to Yardi Matrix’s national multifamily expense data, which showed a cumulative increase of 129% since 2018. Premiums remain structurally elevated relative to pre-pandemic levels, with projections tapering to 3-6% through 2026. Above-Yield Debt Keeps Pricing Conservative Wider borrowing spreads have translated into more conservative pricing, often requiring greater yield cushion and/or price adjustment, and cap rates have been slow to compress as investors prioritize cash-flow certainty over rate-cut expectations. Even with continued rate cuts expected by late 2026, pricing remains anchored to property-level risk and NOI sustainability under higher borrowing costs. As a result, negative-leverage deals should continue to fade throughout 2026, with investors demanding durable yield. Myth: Value-add pricing will normalize once rates fall. Reality: The value-add spread is being driven less by rates and more by execution uncertainty, including higher all-in improvement costs and less reliable rentpremium capture. Pricing Impact: Investors are assigning a larger risk premium to transitional business plans, keeping value-add yields wider and basis expectations tighter. Rent-Controlled vs. Market-Rate Rents and Revenue Rigidity Rent regulation introduces a structural mismatch between rising operating costs and capped revenue growth. Hard rent ceilings prevent owners from adjusting income to keep pace with inflation, tax increases, or insurance expenses, creating a predictable drag on scalable cash flow. Concurrently, rent-controlled properties typically trade at liquidity and pricing discounts, reflecting the regulatory risk embedded in their operating profiles. Even modest rent resets allow owners to absorb cost pressures better, giving these properties a measurable pricing premium in today’s environment. The divide between regulated and unregulated income streams has become one of the most persistent valuation gaps between 2023 and 2026. Revenue flexibility has become a central factor in valuation. Market-rate assets can adjust rents to absorb higher taxes, insurance, and operating costs, preserving NOI stability and attracting tighter yields. Rent-controlled properties, by contrast, face capped income growth while expenses continue to climb, creating a structural drag on long-term performance. Trepp Research shows that multifamily property values declined roughly 30% in New York City following HSTPA and that rent-controlled assets in Los Angeles and the San Francisco Bay Area trade at discounts to unrestricted peers, with Bay Area tenants staying up to 20% longer—slowing rent resets and revenue growth. Investors price these constraints with wider yields, lower liquidity, and deeper discounts. In 2026, investors continue to price this constraint through wider yields, lower liquidity, and deeper discounts. National Valuation Snapshot: Rent-Regulated vs. Market-Rate Source: CoStar Group, Inc. | Q4 2025 Rent-Regulated Cap Rate: 6.4% Sale Price / Unit: $171,927 Positioning: Trades at wider yields and discounted pricing due to regulated rent growth U.S. Market-Rate Cap Rate: 6.1% Sale Price / Unit: $233,197 Positioning: Higher pricing supported by rent-reset flexibility and deeper liquidity Rent-regulated multifamily trades at a 30 bps higher cap rate, which translates into 26% lower pricing per unit. The higher required yield compensates for restricted rent growth and limited rent reset flexibility, which constrain NOI upside and make it harder to absorb rising operating costs. Pricing Dispersion by Fundamentals Uniform pricing spreads have come and gone, and the market has returned to a tiered pricing structure. Investors are particularly meticulous, assigning substantial differences between asset quality, revenue flexibility, and geographic resilience. Class A vs. Class C Pricing differences between Class A and Class C assets are contingent on the stability of the property type. Class A properties tend to show more predictable NOI, lower operating expense volatility, and modern building systems that reduce unexpected capital needs. That stability supports tighter pricing and more consistent liquidity. At the opposite end of the spectrum, Class C assets are often characterized by aging infrastructure, longer repair cycles, elevated insurance exposure, and higher turnover rates, all of which introduce greater execution risk and greater performance variability. Investors now incorporate a broader risk premium in pricing. In 2026, investors continue to price this constraint through wider yields, lower liquidity, and deeper discounts. Myth: Class A and Class C spreads will tighten back to pandemic levels. Reality: Risk differentiation was temporarily muted between 2022 and 2024, when debt was cheap and aggressive growth assumptions compressed spreads across quality tiers. As that anomaly fades and the hierarchy of asset classes returns, RCA reports that the spread between Class A and Class C now ranges from 150 to 200 basis points, restoring a risk hierarchy more in line with historical norms. Pricing Impact: Spreads are likely to remain wider as long as operating costs and revenue outcomes remain volatile, particularly in Class C, where aging systems, insurance sensitivity, turnover, and capital expenditures introduce greater variability. National Multifamily Fundamentals By Class Class A Vacancy Rate: 11.1% Asking Rent: $2,165 Effective Rent: $2,131 Absorption Units: 48,024 Price Per Unit: $327,541 Cap Rate: 5.5% Class B Vacancy Rate: 8.1% Asking Rent: $1,611 Effective Rent: $1,595 Absorption Units: 7,114 Price Per Unit: $194,253 Cap Rate: 6.2% Class C Vacancy Rate: 6.1% Asking Rent: $1,360 Effective Rent: $1,351 Absorption Units: (7,432) Price Per Unit: $179,022 Cap Rate: 6.6% Suburban vs. Urban Markets Geographic fundamentals have also reasserted themselves in pricing. Suburban assets generally benefit from stronger household formation, steadier occupancy, and reduced concession pressure, supporting more defensible income profiles and steadier valuations. Urban assets face different dynamics, including slower rent growth, higher concession packages, elevated turnover, and increased competition from new supply in many core metros. These headwinds support wider yields and more conservative underwriting. The suburban-urban spread reflects investors’ focus on relative risk and transaction depth. CoStar data shows suburban cap rates modestly above urban levels, indicating investors may still require additional yield for suburban assets even when operating performance is more stable. Myth: Stabilized assets are insulated from volatility. Reality: Even Class A properties can see NOI pressure when rent growth stalls and operating costs move higher, limiting nearterm upside versus value-add execution. Pricing Impact: Investors increasingly underwrite wider going-in yield cushions for stabilized deals when expense uncertainty rises, widening dispersion versus assets with clearer NOI growth pathways. The widening gap between asking and effective rents, particularly as quality declines, underscores how concessions and price sensitivity are shaping real revenue outcomes, with weaker absorption in Class C reinforcing downside risk in lower-quality stock. Houston, The Livewire in Multifamily Valuation This Gulf Coast growth market illustrates how quickly multifamily pricing can separate when operating costs rise and supply accelerates, making it one of the most telling barometers for today’s valuation environment. Insurance Shock Premiums up 30-70% since 2022 (Source: FannieMae) Older assets are seeing 15-20% Operating Expenses vs. 8% national avg (Source: FannieMae) Class C assets absorb the steepest surcharges due to aging systems and elevated claims history New Supply Wave ~45,000 units projected to deliver from 2024-2026 (Source: CoStar Group, Inc.) Urban cores face the most extended lease-up timelines Concessions up 8–12% YoY across Class A in 2024-2025 (Source: FannieMae) Rent Fundamentals Effective rents flat to negative in several submarkets Renewal spreads compressing Rising vacancy in new deliveries Spread Behavior Apartment Loan Store Class A-Class C differential: 175-225 bps Suburban assets trade 50-100 bps tighter than urban Class C discounts deepest due to OpEx + CapEx exposure Investor Takeaways: Wide dispersion in NOI trajectories, Wider pricing cushions required, and Suburban stability priced at a premium Even with near-term pressure from supply and insurance-driven operating expenses, Houston’s long-term growth outlook remains intact. Population and job gains continue to expand the renter base, supporting demand as the current delivery wave works through lease-up. The New Multifamily Pricing Rulebook 1. Location Is About Variability, Not Glamour Suburban assets win because occupancy and concessions fluctuate less, not because they’re “hot” Urban assets face wider valuation ranges due to supply, turnover, and concession cycles 2. Cap Rate Floors Are Now Risk-Tiered Class A: stability benchmark Class B: execute and churn risk premium Class C: greater OpEx variability, CapEx burden, and turnover risk result in the widest cap rate levels 3. Stability Premiums Will Dominate Cap rate compression will be slow and uneven, as pricing is driven by operational risk, rather than macro relief The Class A/C spread remains structurally wide as aging stock absorbs higher insurance, CapEx, and turnover risk Pricing the Durable Multifamily pricing has shifted toward what can actually be defended at the property level. In an environment defined by cost pressure and uneven demand, valuations reward assets that keep income steady and expenses predictable, and penalize those with wider operating variance. Reading the market now requires focusing less on broad narratives and more on the mechanics that determine whether NOI holds or erodes. Looking ahead, the reset is likely to remain selective and spread-driven. Properties with flexible revenue, resilient systems, and stable tenant behavior will continue to command a clear pricing premium, while assets with heavier operating drift should face persistent valuation pressure and wider yields. Success in this cycle comes from aligning strategy with what is durable, measurable, and repeatable as the market continues to reprice risk.

Daniel Withers

Executive Vice President & Senior Director

3/19/26

The Rise of Small-Bay Industrial

The industrial sector has seen a significant change following the post-pandemic surge, which resulted in an oversupply of large-scale distribution centers that are 200,000 square feet or greater. Developers responded to the e-commerce boom and low interest rates, and added a record-breaking 1.8 billion square feet of industrial supply across the U.S. since 2020. The new additions outpaced demand as the pandemic slowed down, which led to climbing vacancy rates in the big-box segment. As the market struggled to absorb this massive influx of large product, developers and investors shifted their focus on small- to mid-sized industrial properties, specifically those ranging from 5,000 to 50,000 square feet. This smaller-scale, or “small-bay,” product remains incredibly tight, with a national vacancy rate near historical lows around 3% to 4%, demonstrating its resilience and importance to last-mile logistics, small businesses, and trade-focused users. The shift highlights a key trend in the evolving industrial sector. While large warehouse development slows, with a vacancy rate around 6%, the demand for smaller, flexible facilities is driving a building boom that reflects the diversity of activity across industrial. National Small-Bay Trends A variety of tenants are seeking properties between 5,000 to 50,000 square feet. The demand represents a move away from traditional heavy manufacturing toward specialized, knowledge-based services and high-tech operators. This user base includes local trade businesses—such as plumbers, electricians, and HVAC contractors—and small distributors focused on last-mile logistics who seek infill locations closer to their residential customer base. Additionally, these small- to mid-sized spaces are essential for the growth of modern tech firms. Startups in robotics, drone technology, and specialized R&D require flexible, functional space for prototyping, light assembly, and system testing without the massive footprint of a traditional factory. This newer user base often prefers shorter lease terms than the 10- to 15-year commitments of large distribution centers, allowing for the agility to scale operations quickly with buildouts as their technology matures. Across the country, the Sunbelt states, as well as markets with high population growth and limited supply, are experiencing the most acute demand and lowest availability. While urban centers like Los Angeles and New York’s outer boroughs remain tight, high-growth metros across the country, including Phoenix’s East Valley, Houston, Atlanta, and Central Florida, are seeing particularly low vacancy rates for this product type. The national availability for industrial spaces under 50,000 square feet is very tight at roughly 3.4%, which is well below big-box levels. Competition and Constrained Supply The structural scarcity and increased demand for industrial spaces under 50,000 square feet are hindered by construction costs. While overall industrial construction prices have stabilized from their pandemic peaks, the cost per square foot for smaller, multi-tenant industrial projects is higher than for large big-box distribution centers. Small industrial properties recorded an average sales price of $142 per square foot, increasing by 17% over the previous year. In contrast, large industrial projects averaged around $75 per square foot, a lower level that dropped by 4.2% in one year. This disparity is driven by factors like more extensive site work, complex utility infrastructure, a greater number of individual tenant build-outs, and increased costs for specialized labor. The expense of small-bay construction, coupled with high land costs in infill locations, creates significant barriers to entry for developers, limiting new supply and pushing a variety of highly-qualified tenants into further competition for the existing, limited inventory. San Francisco: Top Metro for Smaller Footprints The San Francisco Bay Area is a prime example of the high demand and scarcity driving the small-bay industrial market’s outperformance. The Bay Area is a prominent metro for its land limitations and consistent demand from high-value, specialized companies. These factors create an environment where the price per square foot and rental rates for the sub-50,000-square-foot segment have demonstrated greater stability and often faster growth than large-scale facilities, which have seen more volatility due to oversupply in other national markets. The essential need for local logistics, high-tech R&D support, and vital trade services means tenants are willing to pay a premium to secure space close to the metro’s talent and consumer base. Next-generation tenants are increasingly fueling this demand. While traditional logistics remain active, the region has seen an influx of AI and robotics firms securing smaller footprints for computer power and flex lab setups, often displacing traditional tenants. One example is the metro’s Peninsula submarket. Here, land is the most limited because it is home to several R&D, life sciences, and specialized tech operators, and the area often outpaces Silicon Valley in conversion activity. These users require older industrial stock that can be repurposed to meet high electrical power and specialized utility needs. Meanwhile, the Oakland/East Bay submarket provides a lower-cost option. Fueled by activity at the Port of Oakland and last-mile distribution requirements, small-bay facilities here are essential for fabrication, local logistics, and distribution that serve other locations across the metro. Further south, San Jose/Silicon Valley is seeing increased demand driven by advanced R&D and manufacturing support services, with data center growth also adding to these expansions. While new additions here are consuming significant industrial land for large, power-intensive facilities, the demand also creates a large domain of support and technical services that rely on flexible, smaller industrial spaces. Price per SF Rises Since Pandemic Metrowide, But Has Since Stabilized *up to 50,000 SF | Source: CoStar Group, Inc. A Foundation for the Future Economy The small-bay segment demonstrates the essential, high demand backbone of modern industrial. Unlike the large-format sector, which grappled with post-pandemic oversupply, the small-bay market is characterized by essential demand outpacing scarce supply. With a variety of tenants, from specialized R&D firms and high-tech startups to local contractors and last-mile logistics providers, their operations require proximity to urban centers. While new, Class A small-bay facilities command premium rents, the competition is increasingly driving smaller businesses to seek more affordable Class B and C industrial properties. This flight to quality underscores a core structural issue—the limited supply of small-bay facilities. Developers are beginning to explore solutions, like multi-story industrial construction in land-constrained urban markets. While this model is effective for maximizing floor space on a small footprint, its high construction cost means it can only deliver high-end, Class A product, which does not meet demand. The gap between this new, high-cost supply and the consistent need for affordable flex and Class B/C space suggests that the small-bay segment will remain the most increasingly sought-after industrial asset for the foreseeable future.

Belall Ahmed

Senior Associate

3/12/26

Texas Retail Market Report | Recap & Future Expectations

The Texas retail market continues to serve as a top location for resilience and growth in 2026. Driven by robust inward migration and a diverse corporate sector, the state’s major metros are successfully navigating the headwinds of high interest rates and national tenant shifts. While Austin maintains its status as the occupancy leader and Houston enters a strategic recovery, Dallas-Fort Worth stands out for its development pipeline. With construction levels reaching decade-highs and a clear shift toward experiential, grocery-anchored suburban hubs, the Texas retail landscape is evolving. By the Numbers | Q4 2025 CoStar Group, Inc. Dallas-Fort Worth Sales Volume: $84.1M Price Per SF: $276 Cap Rate: 6.7% Vacancy Rate: 4.9% Rent Growth: 3.4% Asking Rent Per SF: $224.98 Under Construction: 7.8M SF Delivered: 595K SF Absorbed: 791K SF Austin Sales Volume: $62.6M Price Per SF: $340 Cap Rate: 6.3% Vacancy Rate: 3.1% Rent Growth: 2.6% Asking Rent Per SF: $31.64 Under Construction: 2.8M SF Delivered: 545K SF Absorbed: 383K SF Houston Sales Volume: $368M Price Per SF: $248 Cap Rate: 7.3% Vacancy Rate: 5.3% Rent Growth: 2.1% Asking Rent Per SF: $24.59 Under Construction: 3.4M SF Delivered: 537K SF Absorbed: 556K SF Dallas Leads Nation in Retail Growth Across Dallas-Fort Worth, retail fundamentals continue to show strong resilience and balanced performance. The metro has maintained positive tenant demand for 20 consecutive quarters, despite navigating headwinds from national tenant bankruptcies. Dallas-Fort Worth is currently a national leader in retail construction, with nearly twice the new supply as Houston. While vacancy rates are projected to reach 5% in the first half of 2026 due to new deliveries, demand remains robust across the metro. North DFW Surge in Demand Investor and developer interest has increasingly focused on the high-growth northern areas of the metro. Denton and Collin Counties account for roughly 65% of all current construction projects. Submarkets like Allen, McKinney, Frisco, and Prosper are primary targets for capital, due to rapid population growth and high household incomes. Specifically, Northern Collin County has seen the time to lease fall to historic lows of approximately five months, driven by a lack of new developments in established trade areas. The market’s expansion follows opportunities in outlying areas, where major grocery-anchored developments aid further strip mall and traditional shopping center construction. In areas like Collin County, the premium on land has pushed starting rents around $40 to $45 per square foot. Metro Reaches Record-Breaking Construction Levels DFW is experiencing an ongoing supply wave, reaching 7 million square feet underway at the end of 2025. This is one of the highest development rates recorded for the metro in 10 years. In 2025, the market completed 18% of all net retail deliveries in the country. Despite this surge, supply-side risk is limited as approximately 80% of the retail space currently under construction is already pre-leased. Mixed-use projects are also driving significant activity. In Collin County, major developments like The Farm in Allen and Fields West in Frisco are creating new retail and residential hubs that feature experiential retailers and unique luxury offerings. Austin Achieves Robust Retail Activity Across the Austin metro, retail fundamentals are strong, backed by high occupancy, disciplined new development, and constant population growth. According to Matthews™ First Vice President and Director Andrew Ivankovich, the strong transaction velocity seen at the end of 2025 will continue through 2026. “The market experienced such a frenzy from 2019 to 2022 that it made it challenging for deals to pencil in the few years that followed,” he said. “Sellers’ expectations did not change and high interest rates prevented buyers from acting. Today, both sides have improved and we expect it to be reflected in the year-end velocity report.” Shift to the Suburbs Ivankovich added that retail capital has begun to exit Austin’s CBD and is entering suburban markets. In particular, Hays County and Georgetown accounted for an increased amount of the metro’s deals. Private buyers are attracted to Hays County, with the submarket noting a total $21 million in sales for 2025. Meanwhile, Georgetown recorded a rise in deals for newly-built properties and noted a total $51.5 million for its 2025 sales volume. Both submarkets will be crucial to track moving forward given their constant population growth, as well as Round Rock and Cedar Park. In 2025, Austin’s retail under construction level saw a 38% year-over-year increase, reaching 2.1 million square feet. The metro’s suburbs accounted for more than 96% of all completions last year. Manor is one suburb that stands out from the pack as its inventory grew by 50% throughout the year. The majority of its growth is attributed to the addition of Manor Crossing, a 425,000-square-foot shopping center that was almost fully pre-leased by its completion date. This year, Cedar Park is the next Austin suburb to note an influx of deliveries. The suburb accounts for 33% of ongoing construction, with Cedar View as the largest development. The new project is a mixed-use site that will feature a hotel, a Scheels sporting goods store, and NFM as its anchor. Houston is Set to Recover from 2025 Performance Throughout 2025, Houston’s fundamental activity dropped to historic lows. Its total absorption level for 2025 was 2 million square feet, a decrease from the 2024 absorption rate of 2.5 million square feet. Despite this trend, Houston’s sales volume jumped from 2024 and totaled $1 billion by year-end 2025. Josh Longoria, Senior Associate at Matthews™, expects this activity to continue as the federal funds rate slows down. “As we head into the second month of the year, the federal funds rate has been stable and it seems like there will be no more rate cuts until the new Fed chair is elected,” Longoria said. “I think this will lead to more stability in the market and buyers having more clear expectations of where rates will be, and therefore I think transaction velocity will pick back up.” Tenants Thriving Across Houston 7 Brew and Crunch Fitness are currently two of the largest players in the metro. Crunch Fitness is absorbing sites left by big-box retailers, while 7 Brew is taking up pad sites around 500 to 700 square feet. Texas is a major market for Crunch Fitness, with a strong presence in the Houston submarkets of Kirkwood, League City, and Humble. Crunch Fitness is a preferred tenant for landlords with vacancies over 35,000 square feet. In 2025, the tenant reached 3 million gym memberships. Specifically in Houston, their locations boast fully booked exercise classes, which signals its robust consumer demand. Crunch Fitness’ growing visitations display its positive activity and add to its strong tenant potential. 7 Brew is one of the fastest-growing coffee chains across the country, doubling its national footprint by the end of 2025. In Houston, its expansion is prominent in outer submarkets, with its most recent and upcoming locations in Conroe, Tomball, Spring, Livingston, and Cleveland. With more openings planned across the metro, 7 Brew will maintain its top performance levels as its format allows for easy store placement and a shorter timeframe for opening than a traditional buildout. Top Trends to Watch Moving ahead, Longoria advises landlords to pay attention to their tenants and their sales trends. “I have heard from multiple landlords that the restaurants and beverage concepts are doing as well as they have previously,” he said. “High-end restaurants are not getting as much traffic, which is helping the lower-priced options.” Longoria added that he expects construction activity to pick back up as it has been slow throughout the past few years. “Development is going to come back into full effect as the cost breakdown to build new construction did not make sense and the spread was too thin,” Longoria stated. Specifically, Longoria said that new developments are likely to grow in the 610 Loop. One of the largest additions inside the 610 Loop is Midway’s East River project. The facility is located on the former KBR industrial site east of Downtown, and will add more than 1 million square feet to the area.

Andrew Ivankovich

First Vice President & Director

2/13/26

Q&A Patrick Graham | Houston Market Leader

What It Takes to Win Long-Term in Brokerage Q: Working as a broker, developer, contractor, and investor with over 20 years of experience, you have truly become a chameleon of commercial real estate. What advice do you have for professionals currently navigating this cycle of the real estate market? A: When I first started in commercial real estate, no one told me to specialize. I pursued any deal I could find, and I worked on it. Financially, I did well, but in hindsight, the lack of specialization set me back. Throughout my career, I closed retail, industrial, office, and land deals, and I worked every side of transactions—buyer, tenant, landlord, and seller. I also did construction project management and development. My advice to professionals today is: don’t be a chameleon. Don’t try to be a broker, developer, contractor, and investor all at once. Pick a lane, and be great at one thing. Yes, this is me giving “do as I say, not as I did” advice, but it comes from personal experience. Do not be a generalist, be a specialist, in whatever it is you do. I regret nothing because my generalist background allows me to mentor anyone on any product type, but I do not recommend this approach. Q: Did you plan to build such a diverse commercial real estate career early on, or did it play out organically? A: I spent a decade practicing as a generalist in commercial real estate before realizing something had to change. I looked back at my transaction history and realized I had built broad knowledge across multiple service lines. It was valuable, sure, but it wasn’t as scalable or monetizable as the work my specialized peers were doing. So I revisited my transaction history deal by deal, paying attention to what I actually enjoyed and what I didn’t, and whether the return on my time matched the effort required. That’s how I found my niche—assisting multi-unit retail operators who wanted to own their real estate. I represented them as buyers so they could lease the real estate back to their operating business. I still did tenant representation because it was necessary for those clients, but the owner-occupied side became my primary focus. I found this work more rewarding and mentally stimulating than anything I’d done in the previous decade. It was challenging, but that’s what pushed me to excel and what allowed me to deliver tremendous value to my clients. Once I narrowed my focus, that specialization became what I was known for—and that’s when the phone started ringing. I tell agents, sometimes you pick your specialization, but sometimes your specialization picks you. I think my specialization in retail buyer and tenant site selection picked me. Q: Looking back on your full commercial real estate journey, what is one deal, decision, or turning point that still shapes how you think and operate today? A: Early in my career, a colleague handed me a listing for a small, irregular tract of land. Had I known any better, I probably would have passed on it, but I was hungry for something to call people about, so I jumped in. One of my first cold calls—literally in my first week of brokerage—was to the owner of the light auto repair shop that sat right in the way of a clean assemblage. I called to see if he’d consider selling, which would allow me to assemble the tracts and make them worth more together than apart. He wasn’t interested in selling. But I didn’t let the lead go cold. I focused on becoming a resource for him. Over the next few months, I provided him with valuable insights on how repositioning his shops could better serve the market if he sold. Eventually, he agreed to sell, but only if I could find him a place to relocate his shop. That initial cold call, to someone who had zero interest in selling, blossomed into a 20-year relationship. He owns over 60 locations across Texas, and since then, I’ve represented that family on hundreds of transactions that have generated millions in fees. But the real equity is in the trust and the personal bond we’ve built. Today, we still do business together, but we are even better friends. We know each other’s spouses and kids. When I visit San Antonio, I stay at their house. That’s what makes being a commercial real estate agent the greatest business in the world. It’s a lifelong relationship you can build with your client. Q: Can you share what your favorite transaction was, and why? A: That irregular tract of land wasn’t just my first listing—it was the ultimate masterclass. Because the tract was so poorly shaped, I had to engineer a solution by bringing the neighbors into the fold. Once I convinced the auto shop owner that relocating would put him in a better position to grow, I went to work strengthening the assemblage. I approached the landowner on the other side of him, and she agreed to list her property as well. Suddenly, what started as an awkward, low-frontage listing turned into a much more viable site with real upside. Ironically, the parcel never actually traded. But that small piece of land led to the best client relationship of my career and ultimately spun off hundreds of transactions over the next two decades. It was a listing most agents would’ve passed on, and it ended up shaping how I’ve approached brokerage ever since. Q: You stepped away from your own companies to focus on your passion for guiding the next generation of brokers. What made Matthews the right fit for this next chapter in your career? A: I’d been a partner at a large international brokerage firm before, so I understood the value of having a strong platform behind you—as an agent, a principal, and an office manager. I’ve also founded and operated my own brokerage alongside several other businesses. Over time, I decided I wanted to build something special around one business, and the one I was most passionate about was brokerage. I started winding down my other ventures while writing my training materials and building the back-office platform I knew I’d need to effectively scale the business. That’s when I found Matthews™. They were executing a business model that was incredibly similar to what I had intended, and their training philosophy was almost verbatim to the materials I was writing for my own firm. At the time, Matthews™ hadn’t entered the Houston market, so I reached out to see what their plans were. The alignment was instant. I understood the value of a large platform, and knew I could accelerate what I wanted to accomplish by joining Matthews™ and opening an office in a top-five market. It was a no-brainer. I wanted to make a difference in helping young people start in brokerage and become great agents, and Matthews provided the engine to help me achieve that purpose. Q: What do you consider the most important qualities of a successful agent and how can leaders like yourself help develop those traits? A: The agents I bring on in Houston embody the same core qualities: competitiveness, intelligence, conscientiousness, and self-awareness. Competition is a good thing. It makes us better and pushes us to greater heights. Successful agents do not want to win, they need to win. There is an internal drive that pushes them to work harder than their opponent. They study, practice, and hustle to achieve their purpose. They grow comfortable being uncomfortable and sacrifice to win. Commercial real estate is a problem-solving business that requires intellect, and speed of comprehension is a competitive advantage. The more you can efficiently learn and digest the complexities of your specialization, the faster you will achieve success as an agent. This isn’t about being a genius. It’s about having the intellectual capacity to do the work and adapt in real-time. Conscientiousness is about being aware of how your actions affect other people. Conscientious people care about how they help others. It’s important for agents to listen, so they can understand and deliver high-quality service to their clients. It’s also essential for long-term success in any office. Conscientious agents elevate the culture, communicate well, and make everyone around them better. Another critical component is being self-aware. In this industry, you will face setbacks, but if you blame external factors for your lack of success rather than taking personal responsibility, you will not make it far. If I hire competitive, intelligent, conscientious, and self-aware agents, we’ll do amazing things. I recruit, hire, train, coach, and develop these traits in my agents every day. Q: How do you define success, and how has that definition evolved over the years? A: The value of our existence or our measurement of success must never be based on a number. You must have a purpose that drives you that transcends monetary success. If the value of your existence is based on how much money you make, you will live a shallow life and struggle navigating the fluctuations of our industry. If, instead, the value of your existence is defined by how well you accomplish a meaningful purpose—and you pursue that purpose with diligence, determination, persistence, excellence, teamwork, and attitude—you will enjoy great success and live a life of deep personal meaning. I define success not by numerical measurements but by how well I live up to my purpose. My purpose is to follow God’s will for my life and inspire greatness in commercial real estate professionals. The measure by which I meet the standard set by that purpose every day is the only measure of success that matters to me. Q: Houston is in a generational reset, bringing a fresh perspective and new capital to the market. What are you most excited about, and why? A: Houston has one of the most ethnically diverse populations in the country, bringing immense value to our community. As a global hub for multiple industries, our leaders are driving significant new development both here and across the State of Texas.

Patrick Graham

Market Leader

1/28/26

Houston, TX Multifamily Market Report Q4 2025

Houston’s multifamily fundamentals remained under pressure in Q4 2025, with vacancy reaching a record-high 12.4% and net absorption slowing sharply. Quarterly absorption turned negative in late 2025 for the first time in three years, while annual demand ran roughly 30% below pre-pandemic norms. Asking rents declined 0.9% year-over-year, marking a sustained period of negative rent growth following the first contraction in more than a decade earlier in 2025. Operators have largely prioritized occupancy over rent growth, relying heavily on concessions to compete with new lease-ups. Luxury properties have outperformed on an absorption basis, supported by reduced development starts and long-term affordability advantages versus homeownership, though even this segment has seen rent cuts. By contrast, workforce and mid-tier assets have experienced net move-outs, driven by economic stress and affordability pressures. Suburban submarkets in the northwest and southwest regions of the market continue to account for the majority of positive absorption, while many urban neighborhoods report elevated resident turnover. Key Findings Houston’s multifamily market remains oversupplied, with elevated vacancy and negative rent growth persisting as new deliveries continue to outpace demand, delaying a full supply-demand reset. Leasing activity is increasingly bifurcated, with suburban submarkets and luxury assets capturing most absorption while workforce and mid-tier properties face sustained pressure. Investment activity strengthened through late 2025 as pricing stabilized, financing conditions improved, and investors targeted value-add opportunities amid a cooling but resilient economic backdrop. Houston Multifamily Supply & Demand Dynamics Source: CoStar Group, Inc. Houston Demographics Source: CoStar Group, Inc. Unemployment Rate: 4.4% Current Population: 7,902,289 Households: 2,870,567 Median Household Income: $83,948 Houston remains one of the nation’s largest and fastest-growing metropolitan areas, supported by long-term population inflows and a relatively affordable cost of living. The metro’s population of approximately 7.9 million has expanded nearly three times faster than the national average over the past decade, driven by domestic migration and international inflows. Employment growth has moderated meaningfully, with job gains slowing from post-pandemic highs, though total employment still exceeds pre-COVID levels by more than 300,000 jobs. Oil and gas remains influential, but continued diversification into healthcare, life sciences, aerospace, and biomedical research provides structural support for long-term housing demand. The Texas Medical Center and the TMC3 project represent a major future employment catalyst, though near-term labor market cooling has dampened renter confidence. Houston is the fifth most populous metro area in the United States. 2025 | Source: Greater Houston Partnership Population, Labor Force, & Income Growth Source: CoStar Group, Inc. Houston Multifamily Construction Construction activity has moderated significantly, despite navigating a sizable wave of recent deliveries. Approximately 1,300 units delivered in late 2025, bringing the total number of deliveries since 2023 to more than 62,000. Roughly 13,000 units remain under construction, marking the smallest active pipeline since 2017 but still sufficient to keep vacancy elevated in the near term. New supply is concentrated in high-density urban submarkets and fast-growing suburban corridors, especially in the northwest and southwest portions of the metro. Looking ahead, the sharp pullback in construction is expected to gradually relieve supply pressure and support rent stabilization in late 2026 or early 2027. However, near-term competition among recently delivered assets will remain intense. Units Construction Starts Source: CoStar Group, Inc. Units Under Construction Source: CoStar Group, Inc. Houston Multifamily Sales Investment activity gained traction through 2025, with sales volume reaching approximately $81.5 million in Q4 as transaction counts climbed to a four-year high. Investor sentiment improved as bid-ask spreads narrowed and debt availability expanded, led by the GSEs alongside growing participation from debt funds, banks, and life companies. Average pricing settled near $150,000 per unit, while cap rates averaged approximately 6.6%, reflecting a more normalized risk environment compared to recent years. Transaction activity has been heavily skewed toward value-add and lower-rated assets, with more than four-fifths of trades involving Class C properties. Private capital continues to anchor the buyer pool, though institutional participation increased meaningfully and approached historical norms. Overall pricing is expected to remain relatively stable in the near term, supported by improving liquidity and long-term confidence in Houston’s demographic and economic trajectory. Houston Multifamily Sales Volume Source: CoStar Group, Inc. By the Numbers Q4 2025 | Source: CoStar Group, Inc. Sales Volume: $81.5M Price Per Unit: $150K Cap Rate: 6.6% Vacancy Rate: 12.4% Rent Growth: (0.9%) Asking Rent Per Unit: $1.4K Units Under Construction: 13K Units Delivered: 1.3K Units Absorbed: 233

Luke Matthews

Associate

1/27/26

Houston, TX Medical Office Market Report Q4 2025

The Houston medical ofﬁce market closed Q4 2025 with steady but measured performance, supported by solid leasing activity amid elevated vacancy. A total 100 medical ofﬁces sold this quarter, with assets trading at an average cap rate of 7.5% and $187 per square foot, reﬂecting cautious but ongoing investor interest. Leasing momentum remained positive as 508,000 square feet leased outpaced 329,000 square feet delivered. Vacancy was elevated at 15.2%, highlighting continued availability, particularly among older assets. Rent growth was modest but positive, with asking rents averaging $30.20 per square foot following 1.5% year-over-year growth. Overall, the market demonstrated resilience, though moderate rent gains and higher vacancy suggest conditions remain in a rebalancing phase going forward. Key Findings Market Vacancy and Demand: Houston’s medical ofﬁce vacancy remained elevated at 15.2%, though steady leasing activity helped prevent further expansion. With 508,000 square feet leased outpacing new deliveries, tenant demand showed resilience, particularly in well-located and higher-quality properties. Rent Trends and Pricing: Average asking rents reached $30.20 per square foot, reﬂecting 1.5% year-over-year growth. Rent gains remained modest as landlords balanced pricing power with competitive concessions, signaling a stable but cautious rental environment. Development and Investment Activity: Approximately 1.6 million square feet of medical ofﬁce space remained under construction, as developers moderated new starts. The metro noted a total 100 sales this quarter, with pricing holding near $187 per square foot and cap rates averaging 7.5%. Houston Demographics Source: CoStar Group, Inc. Unemployment Rate: 4.4% Households: 2,869,552 Current Population: 7,900,549 Median Household Income: $83,933 Rents Medical ofﬁce rents in Houston trended modestly upward over the past year, reﬂecting gradual improvement in leasing fundamentals. Average asking rents increased to $30.20 per square foot, up from the $28 range earlier in the period. The upward movement suggests landlords are achieving selective rent growth, particularly in higher-quality assets and well-established medical submarkets. While overall rent growth remains moderate, the consistency of increases indicates stable tenant demand and limited downward pressure on pricing, even as vacancy remains elevated. Market Asking Rent Per SF Source: CoStar Group, Inc. Vacancy Vacancy across Houston remained elevated but showed signs of gradual improvement over the past year. The vacancy rate trended downward from the mid-15% range earlier in the period, ending at 15.2%. Tightening periods were driven by steady leasing activity that helped offset new supply, though gains were tempered by ongoing deliveries and competitive space availability. While vacancy remains above historical norms, the overall downward trend suggests progress toward stabilization. Continued absorption will be key to sustaining vacancy compression in the near term. Vacancy Rate Source: CoStar Group, Inc. Construction Houston medical ofﬁce construction remained active but uneven over the past year, reﬂecting shifting developer sentiment. Quarterly construction starts ﬂuctuated signiﬁcantly, ranging from approximately 55,000 square feet to nearly 470,000 square feet. Total space under construction peaked near 2.0 million square feet before trending lower, ending the period at approximately 1.6 million square feet underway. The recent moderation in active construction suggests developers are exercising greater caution in response to elevated vacancy and modest rent growth. SF Under Construction Source: CoStar Group, Inc. Sales Deal activity in the Houston medical ofﬁce market moderated in Q4 2025, with a total 100 sales, down from several stronger quarters earlier in the year. The quarterly ﬂuctuations in sales volume underscore a market characterized by selective investor engagement, with buyers prioritizing stabilized assets and clear pricing opportunities amid elevated vacancy and modest rent growth. Despite the slowdown, pricing metrics remained relatively stable, suggesting underlying conﬁdence in long-term medical ofﬁce fundamentals. Notably, one of the most signiﬁcant transactions of the quarter occurred at 1800 Augusta Drive, which sold for $6.7 million, highlighting continued activity among smaller-scale medical ofﬁce assets. By the Numbers Q4 2025 | Source: CoStar Group, Inc. # of Sales: 100 Cap Rate: 7.5% Price Per SF: $187 Vacancy Rate: 15.2% Rent Growth: 1.5% Asking Rent Per SF: $30.20 SF Under Construction: 421K SF Delivered: 329K SF Absorbed: 508K

Andrew Richmond

Senior Associate

1/21/26

Houston, TX Industrial Market Report Q4 2025

Houston’s industrial market moderated further in Q4 2025 as new speculative supply continued to weigh on fundamentals, pushing vacancy to 7.2%. Net absorption totaled roughly 2.6 million SF over the past year, down sharply from the post-pandemic peak. In addition, recent deliveries, 3.4 million SF, have outpaced demand, particularly among large, newly built logistics facilities. Even so, rents remain a bright spot: asking rates are up 4.0% year over year, supported by solid leasing activity and limited supply in infill and small-bay segments where vacancies remain well below the market average. However, rising concessions, longer deal cycles, and softer big-box pricing signal a gradual shift toward a more balanced, increasingly tenant-friendly environment heading into 2026. Key Findings Tenant decision-making slowed in Q4 2025 amid tariff uncertainty and economic headwinds, with larger spaces taking longer to lease, as properties 100,000 SF or larger average 7.5 months on market. The vacancy rate increased for the third consecutive quarter in Q4 2025, reaching roughly 7.1%–7.3%, as absorption slowed to 2.6 million SF and new speculative supply continued to enter the market. Market rents were up 4.0% year over year in Q4 2025, supported by gains earlier in the year and strong renewal spreads, though quarterly growth slowed to roughly 1.0% as rising supply and elevated vacancy shifted leverage modestly toward tenants, particularly in large-format space. Houston Industrial Supply & Demand Dynamics Source: CoStar Group, Inc. Houston Demographics Source: CoStar Group, Inc. Unemployment Rate: 4.4% Current Population: 7,892,334 Households: 2,865,174 Median Household Income: $83,818 Houston’s economy remains one of the nation’s stronger large-market performers. With a population of roughly 7.9 million, the fifth largest in the U.S., Houston continues to attract residents due to its young, diverse population, relative affordability, pro-business climate, and median household income of about $83,000. While energy remains a cornerstone, the region is steadily diversifying, led by healthcare, life sciences, aerospace, and biomedical research anchored by the Texas Medical Center, where projects like TMC3 are expected to generate tens of thousands of jobs and billions in economic impact. Port Houston ranks #1 among U.S. seaports for international tonnage with 220.1M metric tons by vessel. 2024 | Source: Greater Houston Partnership Houston Employment by Sector Q4 2024 | Source: Greater Houston Partnership Houston Industrial Construction Industrial construction in Houston remained elevated in Q4 2025, bucking national trends as developers continued to build despite tighter financing conditions. With roughly 24.9 million SF under construction, among the largest pipelines in the U.S., only about 25% pre-leased, new supply has added pressure to fundamentals, contributing to a 7.2% vacancy rate. While demand remains healthy at 2.6 million SF of annual net absorption, supply-side risk is concentrated in large, speculative big-box projects, which are taking longer to lease and are expected to drive additional vacancy expansion into 2026. SF Construction Starts Source: CoStar Group, Inc. SF Under Construction Source: CoStar Group, Inc. Houston’s industrial market posted sales volume of $529M in Q4 2025. Source: CoStar Group, Inc. By the Numbers Q4 2025 | Source: CoStar Group, Inc. Sales Volume: $529M Cap Rate: 7.7% Vacancy Rate: 7.2% Rent Growth: 5.3% Under Construction SF: 24.9M Delivered SF: 3.4M Absorbed SF: 2.6M

Doc Perrier

First Vice President & Director

12/30/25

The Rising Tide of Hotel Delinquency

While post-pandemic tourism seemed to promise a robust recovery for the hotel industry, 2025 has emerged as the year of significant financial headwinds, with growing loan delinquencies indicating underlying stress. An analysis of hotel delinquency reveals an increase in loan distress driven by broader macroeconomic pressures, shifting consumer behavior, and a complex capital markets environment. These challenges are disproportionately affecting specific hotel sectors and metropolitan areas, creating a nuanced and uncertain outlook for the industry going forward. The overall CMBS delinquency rate rose through mid-2025, driven partly by lodging loan distress. For instance, Trepp data shows the CMBS delinquency rate climbing to 7.03% in April 2025, the highest since January 2021. While the lodging delinquency rate showed volatility, it contributed to the broader upward trend. The overall outlook for lodging performance in 2025 is modest, with projected Revenue Per Available Room (RevPAR) growth under 1%. Industry forecasts suggest a modest recovery beginning in 2026, assuming improved economic conditions, more certain federal policy, and stabilizing inflation. Economic Drivers of Delinquency High Interest Rate: The prolonged period of elevated interest rates has made refinancing difficult and more expensive for hotel owners, increasing the risk of maturity defaults. Persistently High Inflation: Elevated inflation has increased operating and ownership expenses for hotels faster than revenue growth, squeezing profit margins. Weakened Economic Growth: A projected slowdown in U.S. GDP growth in 2025 dampens overall consumer and business spending, negatively affecting hotel demand. Slowing Consumer Spending: High inflation and macroeconomic fatigue are impacting consumer behavior, with a noticeable decline in travel intent, especially in certain market segments. How Capital Markets Environment is Impacting Distress Tightened Lending Standards: Banks and other lenders have become more selective and conservative in underwriting new hotel loans, tightening coverage requirements and reducing leverage. Bank Pullback: Regional and mid-tier banks, a vital source of financing for many hotel owners, have significantly pulled back from commercial real estate lending. Increased Maturity Defaults: The combination of higher interest rates and tight lending has led to an increase in loan maturity defaults, forcing borrowers to seek extensions or face special servicing. Sector-Specific Distress Facing the most acute wave of refinancing stress since the Global Financial Crisis, the data for Q4 2025 reveals a nationwide swell of loans reaching maturity between late 2025 and early 2026, with an alarming concentration of full-service hotel assets on watchlists or already transferred to special servicers. According to data, roughly 40-45% of full-service loans are flagged as “potentially troubled”, “troubled,” or “transferred to special servicer.” The distress is particularly concentrated in gateway and convention-heavy markets such as: New York City San Francisco Los Angeles Atlanta Miami Boston These are properties that were historically resilient due to strong business and international travel demand but are now struggling under the weight of variable-rate debt, declining RevPAR recovery trajectories, and inflated expense structures (labor, insurance, property tax). Meanwhile, limited-service hotels — though not immune — show greater stability, with distress levels closer to 15–20%, mostly among older assets in secondary or tertiary markets. Sector Breakdown Economy and Extended-Stay Segments: Recent trends show rising strain in the economy and extended-stay categories, particularly concerning the latter. While initially resilient during the pandemic, extended-stay delinquency rates surged in 2024 and 2025, possibly due to oversupply in some areas and macroeconomic pressure on budget-conscious consumers. Full-Service Properties: This segment has seen a slower recovery than limited-service hotels as, as of July 2025, remains well above pre-pandemic delinquency levels. Their reliance on business, group, and international travel makes them vulnerable to shifts in these demand channels. Luxury and Upscale Segments: These properties generally fare better, as high-income travelers have maintained their spending, allowing these hotels to maintain stronger performance. However, not all luxury and upscale hotels have scrapped by. Some high-profiles assets have been flagged as distressed, with nearly 60% having variable-rate loans, often structured as fully interest only, these include: The Ritz-Carlton Kapalua Embassy Suites Denver Downtown Ritz-Carlton San Francisco Renaissance Atlanta Midtown Marriott Charlotte City Center The floating-rate structure has compounded stress as benchmark rates surged, doubling interest costs in under 24 months. The Maturity Wall Effect The data shows over 70% of loans maturing in Q4 2025, corresponding with refinancing vintages from 2015 and 2020. These loans originated during eras of either: historically low interest rates (2015–2020), or COVID-era forbearance extensions. As these mature into a 2025 environment with rates 300–400 bps higher, debt service coverage ratios are collapsing — especially for hotels with variable-rate or interest-only structures. Geographic Concentration of Risk Oversupply and Market-Specific Factors: Banks and other lenders have become more selective and conservative in underwriting new hotel loans, tightening coverage requirements and reducing leverage. Reliance on Specific Travel Types: Metro areas heavily dependent on business or international travel may experience heightened risk, while leisure-driven or drive-to markets may be more insulated. For example, a decline in inbound international travel impacted major U.S. markets in 2025. Political or Economic Events: Localized events, such as the deployment of National Guard troops or FEMA have also been noted as affecting hotel performance and occupancy. West Distress Concentrated Maturity Risk: Nearly half the regional hotel debt will mature by 2027, the peak point of refinancing risk due to higher interest rates and slower RevPAR recovery. Limited-Service Weakness: While full-service hotels capture headlines, the distress here is deeply structural and operational, concentrated among smaller franchised assets in suburban markets that lack pricing power and have absorbed operating cost inflation. California’s Market Divide: Northern California’s tech-linked metros (San Jose, East Bay, Sacramento) show more stress than Southern California, where leisure demand remains resilient. Institutional Fallout ahead: Given the clustering around major flagged portfolios (Larkspur and Marriott-affiliated loans), expect loan sales, recapitalizations, or CMBS transfers through 2026-2027. Southwest Distress Texas: The Epicenter of Refinancing Risk: With over 70% of Southwest exposure, Texas is the region’s stress point—especially Dallas, Houston, and Austin, where high concentrations of CMBS debt originated during the 2016-2018 boom now approach maturity. Limited-Service Saturation and Margins: The distress curve is driven by margin compression rather than occupancy collapse. Labor and insurance costs are eroding NOI for franchised, limited-service hotels. Maturity Wall Alignment with National Pattern: The Juen 2027 concentration mirrors the West’s pattern, signaling that across both regions, the 2027-2029 refinancing window will likely trigger a broader restructuring cycle. Brand-Level Vulnerability: Brands like Travelodge, Hampton, and Holiday Inn Express dominate distress counts, signaling systemic exposure for select-service operations tied to midscale demand Northeast Distress Urban/Suburban-Weighted: Northeast distress is anchored by legacy business travel metros and secondary cities with aging hotel infrastructure. Structural Loan Risk—Mezzanine Exposure: At 22% mezzanine loans, the region shows one of the highest mezz debt shares of all regions, a key indicator of capital stack complexity and limited refinance flexibility. Cross-Brand Refinancing Risk: Even upper-midscale brands (Residence Inn, Courtyard, Hilton Garden Inn) are facing refinancing pressure. This suggests the issue is macro-financial (interest rate and NOI compression) rather than localized underperformance. Maturity Wall Alignment with National Trend: The June 2027 spike aligns with the cross-regional pattern, confirming that most of the U.S. hospitality sector will hit a refinancing wall in mid-2027. Midwest Distress Twin Maturity Cliffs: The Midwest will face two separate stress waves—a 2027 maturity surge driven by 2017 loan vintages, and a 2029 wave tied to later-cycle CMBS issuance. This will extend refinancing risk deeper into the decade. Limited-Service Saturation and Margin Pressure: High exposure to limited-service hotels (89%) creates systemic vulnerability. Persistent operating cost inflation (labor, utilities, insurance) continues to erode debt coverage, especially for older franchised assets. Diffuse Distress, Localized Pain: The Midwest’s pattern is broad and diffused, reflecting a slower bleed rather than a single collapse. Tertiary metros in Ohio and Kansas will face the most acute refinancing hurdles due to limited lender appetite. Economy and Extended-Stay Weakness: Both extremes of the market—low-end economy chains and older extended-stay brands—are struggling. This reflects a bifurcated recovery, limited ADR growth for economy properties and prolonged business travel softness for long-stay assets Southeast Distress Early Maturity Wall: The Southeast faces an earlier maturity surge in mid-2026, setting it up as the first regional test case for hotel refinancing outcomes. Florida, Georgia, and the Carolinas will likely see repricing events in early 2026 as institutional owners seek discounted refinances or sell debt at par losses. Diverse Market Exposure, Concentrated Risk: Distress is concentrated in Sunbelt metros (Atlanta, Charlotte, Raleigh, Nashville, and New Orleans). Many high-growth markets that overbuilt between 2015-2019. Furthermore, the highest exposure sits in suburban corridors and interstate-linked nodes (outside primary business districts) leaving them more exposure to cap rate expansion. Brand-level Stress Across Chain Scales: Distress extends from budget (WoodSpring, La Quinta) to upscale (Embassy Suites, Courtyard) — revealing that rate pressure and higher debt costs are sector-wide issues, not confined to lower-tier operators. Refinancing Complexity Rising: The 14% mezzanine share signals layered capital stacks, making workouts more complex. Many mezz positions likely originated during the 2020–2021 recovery wave, meaning borrowers now face constrained equity and debt yields. Outlook The overlap between maturity walls and rate resets implies distress will intensify into Q4 2025–Q1 2026. For many borrowers, refinance proceeds won’t cover existing debt balances, forcing capital calls, equity dilution, or hand-backs to lenders. As hotel owners navigate this environment, they will seek loan extensions, focus on operational efficiencies, and in some cases, target value-add properties that can be repositioned. Vulnerability to Continued Distress Consumer Credit Stress: Growing credit card delinquency rates, particularly among lower-income consumers, pose an ongoing risk to the economy hotel segment. Rising Expenses: Inflationary pressures and a tightening labor market continue to increase operating costs, eating into profit margins and pressuring hoteliers. Capital Expenditures (CapEx) Challenges: With thinner margins, some limited-service properties may defer necessary maintenance and renovations, leading to asset quality deterioration and longer-term risks. The increasing hotel delinquency market is a complex issue driven by high interest rates, inflation, and shifting consumer behavior. The impact is not uniform, with economy and extended-stay properties showing rising distress, while luxury segments remain relatively stable. The ability of individual markets to recover depends on local demand drivers and overall economic health. The delinquency trend highlights the broader stress in the commercial real estate market and is susceptibility to macroeconomic shocks. It underscores the importance of resilient capital structures and agile management strategies. The coming years will test the resilience of many hotel owners as they navigating refinancing hurdles and a more cautious consumer climate.

Mabelle Perez

Vice President

12/12/25

Houston, TX Retail Market Report Q3 2025

Retail leasing activity in Houston remained solid through 2025, driven primarily by demand for newer, higher-quality centers. Properties built within the past five years absorbed over 3 million SF in the past year, supported by tenants like grocery, fitness, quick-service restaurant, and auto-service users. Leasing volume through the first three quarters reached 8.1 million SF, up 10% year-over-year, with strong backfill demand as bankruptcies eased. However, prime space remains limited—half of available inventory was built before 1990, and availability in Uptown/Galleria sits near historic lows at 2%. Rent growth has slowed to 1.5% year-over-year, averaging $24.00/SF, though prime suburban pads exceed $30/SF. Despite the cooling pace, Houston remains a landlord’s market with minimal concessions for top-tier space. Key Findings Houston’s retail market remains tight, with vacancy at 5.3% and absorption of 876,000 SF driven by strong demand for newer, high-quality space and limited prime availability. Asking rents rose 1.6% year-over-year to $24.30/SF as construction costs and lending constraints kept new supply low, with only 2.7 million SF currently underway. Investment momentum strengthened with $326 million in sales at $246/SF and cap rates stabilizing at 7.3%, reflecting renewed confidence and increased REIT and private buyer activity. Houston Retail Supply & Demand Dynamics Source: CoStar Group, Inc. Houston Demographics Source: CoStar Group, Inc. Unemployment Rate: 4.4% Current Population: 7,889,857 Households: 2,889,349 Median Household Income: $81,974 Houston’s economy remains one of the nation’s strongest, with employment still well above pre-pandemic levels despite a slowdown in job growth. The metro’s population of 7.9 million continues to rise, supported by affordability, diversity, and a pro-business climate. Houston is rapidly diversifying into healthcare, life sciences, and aerospace, led by major developments like the TMC3 project, which will add thousands of jobs and billions in economic impact. Median household income slightly exceeds the national average, reflecting strong earning potential and a relatively low cost of living. Houston’s global connectivity—particularly its strong ties to Mexico and Latin America—also supports steady business, trade, and medical tourism growth. Population, Labor, & Income Growth Source: CoStar Group, Inc. Houston Retail Construction Retail construction in Houston remains near record lows as high costs and strict lending standards hinder new starts. Most projects require anchor tenants or 30–50% preleasing to move forward. About 2.7 million SF is underway, half the 2015–2019 average, with roughly 75% preleased, limiting new supply impacts. Development is concentrated in fast-growing suburban areas like Montgomery County and Far South Houston, often featuring grocery-anchored or smaller strip centers. Urban redevelopment is gaining traction, highlighted by Midway’s $2.5 billion East River project near Downtown and the 105-acre San Jacinto Marketplace in Baytown. Overall, supply will remain constrained as rising construction costs continue to outpace achievable rents. SF Construction Starts Source: CoStar Group, Inc. SF Under Construction Source: CoStar Group, Inc. Houston Retail Sales Houston’s retail investment market has been highly active in 2025, with transaction volume up nearly 50% year-over-year as buyers and sellers align on pricing. Regional banks remain the most active lenders, while larger banks and insurance companies are gradually returning. Cap rates, which expanded sharply in 2023–2024, have largely stabilized or even compressed, with triple-net properties trading around 5–6% and strip centers in the 7–8% range. Private buyers still dominate, though REITs are reentering, exemplified by Brixmor’s $223 million purchase of LaCenterra at Cinco Ranch. Despite inflation and tariff concerns, limited new construction and strong demand continue to support Houston’s retail market stability. Houston Retail Sales Volume Source: CoStar Group, Inc. By the Numbers Source: CoStar Group, Inc. Sales Volume: $326M Price Per SF: $246 Cap Rate: 7.3% Vacancy Rate: 5.3% Rent Growth: 1.6% Asking Rent Per SF: $24.30 Under Construction: 2.7M SF Delivered: 733K SF Absorbed: 876K SF

Houston, TX Industrial Market Report Q3 2025

Houston’s industrial market softened slightly in Q3 2025 as vacancies continued their upward trend and rent growth moderated. The overall vacancy rate rose to 7.4%, up from 7.3% in Q2 and 6.4% a year ago, reflecting the continued imbalance between new supply and demand. Compared with the prior quarter, net absorption declined by roughly 12%, while new deliveries increased by nearly 18%, widening the vacancy gap. Absorption rates remain about 15% below 2017–2019 levels, suggesting it could take several years for the bulk distribution sector to return to balance. Despite this, absorption stayed positive, with 10.9 million SF taken up over the past year. Asking rents averaged $9.33/SF, up 3.2% year-over-year but with minimal quarterly growth of 0.3%, as speculative deliveries gave tenants more leverage. The slower quarter-to-quarter rent movement contrasts with the 0.7% gain seen in Q2, underscoring a cooling trend in pricing momentum. Key Findings Panelmatic and Inventec signed leases over 500,000 SF near I-45 and I-10, and in September, Eli Lilly revealed plans for a $6.5 billion manufacturing facility in Generation Park—the largest in the U.S. Vacancy reached 7.4% as new supply entered the market and absorption moderated, with spaces now taking an average of 10 months to lease. This reflects a more measured pace compared to just 2.8 months two years ago. The market totals 838 million SF across 20,582 buildings, with 21.1 million SF under construction, 75% of which remains available, pushing the availability rate to 9.7% as developers continue delivering large speculative projects. Houston Industrial Supply & Demand Dynamics Source: CoStar Group, Inc. Houston Demographics Source: CoStar Group, Inc. Unemployment Rate: 4.4% Current Population: 7,883,927 Households: 2,887,007 Median Household Income: $81,844 Houston’s industrial market remained active and resilient in Q3 2025. The region’s inventory reached 838 million square feet across 20,582 buildings, supported by a robust development pipeline with 21.1 million square feet under construction. Leasing demand stayed strong, reflected in 10.9 million square feet of net absorption during the quarter. Availability measured 83.2 million square feet, resulting in a 9.7% availability rate and a 7.4% vacancy rate. Additionally, investor activity remained steady, with 7.2% of the total market trading hands over the period, underscoring continued confidence in Houston’s industrial fundamentals. Top U.S. Metros for Job Growth in Renewable Energy Source: Greater Houston Partnership Port Houston Economic Value Source: Port Houston Statistics Statewide: $439 Billion Nationwide: $906 Billion Houston Industrial Construction Construction activity in Houston’s industrial market remained strong in Q3 2025, with 21.1 million SF underway, one of the largest pipelines in the nation. Despite financing challenges, speculative development continues, with only about a quarter of projects pre-leased. Much of the new supply is concentrated in large-format facilities, which are taking longer to lease, while smaller properties are moving more quickly. Availability for buildings 250,000 SF or larger sits near 50%, well above the market average of 9.7%, as a surge of big-box projects hit the market. Construction is focused in suburban areas with access to labor and transit infrastructure, and although total deliveries are expected to dip to a seven-year low this year, rising groundbreakings point to increased activity in 2026 and beyond. SF Construction Starts Source: CoStar Group, Inc. SF Under Construction Source: CoStar Group, Inc. Houston’s industrial market posted a sales volume of $161M in Q3 2025. Houston Industrial Sales Volume Source: CoStar Group, Inc. By the Numbers 5K+ SF & All Tenant | As of September 18, 2025 | Source: CoStar Group, Inc. Under Construction SF: 21.1M Net Absorption SF: 10.9M Availability Rate: 9.7% Vacancy Rate: 7.4% Inventory SF: 838M Available SF: 83.2M % of Market Sold: 7.2% Market Size Buildings: 20,582

Doc Perrier

First Vice President & Director

10/21/25

The Matthews Podcast — Andy Weiner of Rockstep Capital

The Power of Principle-Driven Real Estate with Andy Weiner On this episode of The Matthews Podcast, guest host Patrick Graham sits down with Andy Weiner, Founder and President of RockStep Capital, a Houston-based investment firm redefining the future of community retail. With a career spanning four decades, Andy has transformed how investors and developers view shopping centers, turning overlooked properties into thriving local hubs that anchor neighborhoods and fuel economic growth. From Retail to Real Estate Visionary Andy’s journey began on the front lines of retail. Before founding RockStep Capital, he spent years in the retail business, giving him an operator’s eye for how customers, tenants, and communities interact. That foundation later became the cornerstone of RockStep’s investment philosophy: every property has a story, and a second act. His move from retail into real estate investment wasn’t just a career shift; it was a mission to breathe new life into struggling centers across America. By understanding both sides of the table, the tenant and the landlord, Andy built a model that blends financial discipline with community revitalization. The “Hometown America” Strategy At the heart of RockStep’s approach is its HomeTown America initiative: a strategy focused on revitalizing retail centers in secondary and tertiary markets that are often overlooked by institutional capital. These properties, once the center of local commerce, are being reimagined into mixed-use spaces that serve as anchors for small businesses, healthcare, and community life. Andy describes this model as “investing in people as much as properties.” By partnering with local tenants and city leaders, RockStep transforms dated malls into vibrant town centers—where retail, entertainment, and daily services coexist. Turning Distress into Opportunity While many see retail distress as a market headwind, Andy sees it as a generational opportunity. He explains how shifting consumer habits, e-commerce adaptation, and post-pandemic demand for convenience have created openings for creative investors. Rather than chasing major metros, RockStep finds value in underserved cities where competition is low, but community demand is strong. This contrarian playbook has allowed the firm to deploy capital strategically and deliver consistent returns while supporting local growth. Partnership, Purpose, and Patience For Andy, success in retail reinvention depends on partnership and long-term vision. RockStep’s projects often involve close collaboration with municipalities, lenders, and regional developers. These partnerships allow the firm to align community needs with investor goals, bridging the gap between capital and impact. He emphasizes patience as a competitive edge, “you can’t flip communities overnight, real transformation takes time, trust, and a shared purpose.” Lessons in Leadership Andy’s leadership philosophy centers on curiosity, humility, and persistence. He believes the best leaders listen first, especially to the people who live and work in the markets they serve. From navigating rising interest rates to managing redevelopment risk, he underscores the importance of staying adaptable while keeping mission and value creation at the core. “Don’t underestimate the power of understanding the customer,” says Andy. “Whether you’re leasing space or raising capital, it’s all about people.” Top Takeaways for CRE Professionals Adaptive reuse and mixed-use conversions are redefining how communities shop and connect. Secondary cities are becoming prime investment opportunities for long-term value creation. Aligning capital, local government, and tenant needs unlocks sustainable redevelopment. Grounding projects in community benefit builds trust and long-term stability. From Houston to heartland America, Andy Weiner is rewriting what it means to invest in retail, proving that with vision and persistence, legacy assets can become engines of local revival and national growth.

Houston, TX Healthcare Market Report Q3 2025

Houston’s healthcare sector serves as a critical engine of economic growth, anchoring the city’s broader diversification efforts beyond its traditional energy base. The Texas Medical Center (TMC), the world’s largest medical complex, employs over 100,000 people and draws patients globally, and with the TMC3 life sciences campus under construction, Houston is positioning itself as a major healthcare hub. Combined with the metro’s relatively affordable cost of living, high median household income, and strong talent pipeline from local universities, Houston’s healthcare ecosystem is expected to remain a cornerstone. Highlights Medical office buildings remain attractive, but looming loan maturities and higher refinancing costs motivate some owners to sell rather than refinance. Rising vacancy rates and slower lease-up periods are beginning to weigh on property performance and valuations. While construction is currently limited, Houston’s history of heavy development cycles raises long-term risks of oversupply compared to peer markets like Austin and San Antonio. Houston Demographics Source: CoStar Group, Inc. Unemployment Rate: 4.4% Current Population: 7,883,927 Median Age: 34.3 years Household Income: $81,844 Population, Labor Force, & Income Growth Source: CoStar Group, Inc. Rents Average asking rents rose from $26.96/SF in Q1 2022 to $28.68/SF in Q3 2025, marking a gain of roughly 6.4%. While these increases appear modest on a quarterly basis, the trend highlights consistent upward momentum, even as traditional office continues to face record-high vacancy rates and steep concessions. This measured, incremental rent growth reflects the strong underlying fundamentals of healthcare real estate in Houston, supported by the city’s rapidly expanding medical ecosystem anchored by TMC and demand from providers who require long-term, strategically located facilities. Vacancy MOBs have held up better than traditional office, though vacancy has inched up from 21.0% in Q1 2022 to 28.1% in Q3 2025 as new supply and repositioned space entered the market. This rise masks stronger underlying fundamentals: job growth in ambulatory healthcare rose about 4% over the past year, outpacing overall office-using employment and ensuring sustained demand from providers tied to Houston’s expanding healthcare ecosystem and the Texas Medical Center. Construction With the TMC3 life sciences campus under construction, Houston is positioning itself as a national leader in biotechnology and commercial research, aiming to rival innovation hubs like Cambridge and San Francisco. The project is projected to generate more than 26,000 jobs and billions in economic benefits, while also catalyzing additional private investment in research facilities, labs, and mixed-use developments. Beyond TMC3, multiple large-scale life sciences and healthcare-oriented developments are underway, further entrenching Houston’s role as a hub for medical advancements. Houston Healthcare Sales Houston’s medical office investment market has remained a relative bright spot, drawing steady interest from private buyers and specialized funds. Sales volume has been resilient, with activity accelerating in 2025 after a slower 2024. Transactions totaled $55.4M in Q3 2025, the highest quarterly tally in more than two years, while pricing has held firm near $195/SF. MOBs continue to trade with compressed cap rates in the 7%–8% range, and premier properties can achieve sub-7% yields due to long-term leases and stable tenancy from healthcare providers. Recent examples, such as the Grand Parkway Professional Building trading at a 7.1% cap rate, highlight investor appetite for reliable income streams tied to Houston’s expanding healthcare base. By the Numbers Q3 2025 | Source: CoStar Group, Inc. Sales Volume: $55.4M Cap Rate: 7.25% Price Per SF: $195 Vacancy Rate: 28% Rent Growth: – Asking Rent Per SF: $28.67 SF Under Construction: 97,552 SF Delivered: 75,135 SF Absorbed: (113,114)

Houston, TX Multifamily Market Report Q3 2025

Houston’s multifamily market showed mixed performance in Q3 2025 as vacancy remained elevated at 11.6%, unchanged from the prior quarter but up year-over-year, marking a 20-year high. Strong demand supported 3,100 units absorbed, yet new supply, with 4,800 units delivered and 9,000 under construction, continued to outpace leasing. Rent pressure persisted, with asking rents averaging $1,400 per unit and rent growth down 0.6%, following a negative turn in Q2 for the first time since 2010. Suburban submarkets drove most absorption, but oversupply kept concessions widespread. Despite near-record absorption earlier in the year, rent softness and elevated vacancies are expected to continue until supply moderates and demand fully catches up. Key Findings Conditions are improving as vacancy holds at 11.6%, however rent growth remains negative at -0.6% and asking rents average $1,400, with heavy concessions needed to maintain occupancy around 93% For the first time in four years, absorption outpaced new deliveries in the first half of 2025, driving a 50-basis-point drop in the overall vacancy rate. Investors remain active with $57.5M in sales, $150K per unit pricing, and cap rates rising to 6.5%, reflecting cautious optimism as fundamentals slowly strengthen. Houston Multifamily Supply & Demand Dynamics Source: CoStar Group, Inc. Houston Demographics Source: CoStar Group, Inc. Unemployment Rate: 4.4% Current Population: 7,883,927 Households: 2,887,007 Median Household Income: $81,844 Houston’s economy is among the nation’s strongest, with over 300,000 more jobs than before the pandemic, though growth is slowing after several years of record gains. The metro area, now the fifth largest in the U.S. with 7.9 million people, continues to attract residents thanks to its affordability, business-friendly climate, and cultural diversity. While oil remains vital, Houston is rapidly diversifying into healthcare, biomedical research, and aerospace. The Texas Medical Center’s TMC3 project alone is expected to create 26,000 jobs and $5.2 billion in economic impact. With strong population growth, a median income above the national average, and a key role as a gateway to Latin America, Houston’s outlook remains robust and diversified. Houston’s Largest Companies by Revenue Over $50 Billion | Source: Greater Houston Partnership ConocoPhillips Phillips 66 Sysco Exxon Mobil Population, Labor Force, & Income Growth Source: CoStar Group, Inc. Houston Multifamily Construction Construction activity slowed notably in Q3 2025, signaling a shift toward a more balanced supply environment. About 9,000 units were under construction, the lowest level since 2011, as elevated capital costs, tighter lending, and material cost uncertainty curbed new starts. Deliveries continued to moderate, with 4,800 units completed and 3,100 units absorbed, while groundbreaking activity in the first half of the year suggested a potential 15-year low for annual starts. Development remains concentrated in luxury mid- and high-rises in the urban core and suburban projects in fast-growing areas like Bear Creek and Northwest Houston. The pullback in construction is expected to ease pressure on the 11.6% vacancy rate and support rent stabilization in 2026. Units Construction Starts Source: CoStar Group, Inc. Units Under Construction Source: CoStar Group, Inc. Houston Multifamily Sales Investment activity in Houston’s multifamily market remained steady in Q3 2025, with total sales volume reaching $57.5 million and properties trading at an average of $150,000 per unit. Investor sentiment continues to improve following a cyclical low in early 2023, with a higher number of transactions recorded in the first half of 2025 than any comparable period since 2022. Cap rates have adjusted upward to around 6.5%, reflecting a higher-return environment amid elevated 11.6% vacancy and -0.6% rent growth. Buyers are prioritizing stable, income-producing core and core-plus assets, particularly among Class A properties, which has accounted for a rising share of trades. As new supply slows and fundamentals stabilize, investor confidence is expected to strengthen further. Houston Multifamily Sales Volume Source: CoStar Group, Inc. By the Numbers Q3 2025 | Source: CoStar Group, Inc. Sales Volume: $57.5M Price Per Unit: $150K Cap Rate: 6.5% Vacancy Rate: 11.6% Rent Growth: (0.6%) Asking Rent Per Unit: $1.4K Under Construction: 9K Units Delivered: 4.8K Units Absorbed: 3.1K Units

No Anchor, No Problem: Unanchored Strip Center Report

Unanchored strip centers—those smaller, convenience-driven retail properties ranging from 10,000 to 50,000 square feet—are stealing the spotlight in 2025. They might not have a big-name grocery chain or anchor tenant, but they’re more than holding their own. With tight retail supply and resilient consumer spending, these centers are commanding high occupancy, steady rent growth, and increased investor interest. Once seen as a secondary retail type, their adaptability, neighborhood-focused tenant mix, and ability to handle turnover with ease have redefined them as dynamic, core retail assets. This report breaks down the numbers behind this transformation, analyzing performance from coast to coast. Performance Overview Consumer Spending Fuels Growth The overall outlook for retail in 2025 is positive, supported by resilient consumer spending, easing financial pressures, and productivity gains. With job growth and rising wages continuing to put money in shoppers’ pockets, consumer spending, the lifeblood of retail, is strong despite uncertainties in the market. The Metrics: Occupancy and Rent Growth Proving that you don’t need a heavyweight tenant to be a heavyweight contender. Retail space is hard to come by in 2025, with national vacancy at historically low levels, around 4% to 5%. Unanchored strip centers, while slightly trailing their grocery-anchored counterparts, average a 4.5% vacancy rate. Occupancy at unanchored strip centers is holding steady and likely contributing to the overall tightness in the market. Power centers see a vacancy rate of 4.3% and enclosed malls 8.7%. Unanchored strip retail resilience stems from a few key strengths: • Demand for high-quality retail space that far exceeds supply • Resilience of service-oriented and local businesses • Flexibility to accommodate a diverse tenant mix In today’s constrained development environment, where limited new retail construction is coming online, existing unanchored strip centers are well-positioned to capture demand and maintain high occupancy. These same fundamentals are fueling steady rent growth. The average asking rent for strip centers rose from $17.10 in Q1 2019, to $20.85 in Q2 2025, a clear signal of the value tenants place on visibility, convenience, and accessibility. With landlords in a strong position amid elevated occupancy and limited competition, unanchored centers are expected to meet or slightly exceed the projected 2% national retail rent growth rate for 2025. Taking Center Stage Investment Momentum Builds Investor interest in unanchored strip centers has reached new heights. At the heart of their appeal is the relatively low acquisition cost, steady cash flow, and flexibility to adapt leasing strategies to local demand. While private investors have long dominated this space, institutional capital is increasingly entering the fold. Large funds and institutions are drawn to the sector’s straightforward investment and potential for scale, particularly in today’s yield-constrained environment. A growing focus on value-add opportunities is further fueling momentum, as investors seek to unlock upside through improved management, strategic leasing, and targeted renovations. Many of these assets, historically held by private owners, offer room to reposition rents, optimize tenant mixes, and enhance operational efficiency, better positioning them for revenue growth and broader investor appeal. Data shows that cap rates for unanchored strip centers in Q2 2025 average: • Class A: 6.9% • Class B: 7.2% By contrast, grocery-anchored retail centers show slightly lower cap rates in Q2 2025: • Class A: 6.1% • Class B: 5.4% This shift is supported by cap rate trends that suggest healthy return expectations. As of H2 2025, cap rates for unanchored strip centers average 7.0%. These yields remain generally higher than those for grocery-anchored centers, which average 5.7%, reflecting both the slightly higher perceived risk and the value-add potential unanchored centers offer. Many investors are capitalizing on this spread by pursuing active management strategies to boost NOI through improved leasing and repositioning efforts. These assets are increasingly viewed as stable alternatives to other asset classes such as office and multifamily, where returns may be compressing in many markets. However, the segment is not without nuance. Some unanchored centers, particularly those overlapping with categories like freestanding retail or housing vulnerable tenants such as pharmacies and discount retailers, may face short-term challenges. Closures and consolidation in these categories could temporarily raise vacancy rates, primarily in centers with concentrated exposure. Yet, landlords able to backfill with more resilient, service-oriented tenants often see limited disruption. Retail’s Quiet Climbers Trends in the Unanchored Space Resilience of Local Businesses Small, entrepreneurial “mom-and-pop” tenants continue to be a stabilizing force in unanchored strip centers. Their strong personal investment, adaptability, and long-term commitment make them reliable and valuable tenants. Rise of Experimental and Service-Oriented Retail Fitness studios, salons, medical clinics, and diverse restaurants are increasingly occupying space, reflecting consumer demand for convenience and in-person services less vulnerable to e-commerce disruption. Omnichannel Integration Retailers are leveraging unanchored centers as key touchpoints for e-commerce fulfillment—facilitating in-store pickups, returns, and last-mile logistics. These centers help bridge online and physical retail in a consumer-centric way. Regional Deep Dive: Standout Markets of Unanchored Strip Retail West Rebounding with strong, urban core demand in H1 2025 • Los Angeles: $239M • San Diego: $235M • Seattle: $110M • Vegas: $100M Southwest Stable growth with high pricing resilience in H1 2025 • Dallas: $324M • Houston: $175M • Phoenix: $120M • Denver: $113M Midwest Stabilizing, but still in early recovery • Chicago: $334M in 2024, $93M in H1 2025 Northeast Pricing in strength returns amid cautious optimism • NYC: $336M in 2024, $70M in H1 2025 • Boston: $155M in 2024, $48M in H1 2025 Mid-Atlantic Reacceleration led by D.C. and institutional capital • D.C.: $212M in 2024 (3x 2023), $100M in H1 2025 Southeast Consistently leads in volume and momentum throughout H1 2025 • Nashville: $111M • Lexington: $137M • Jacksonville: $113M • South Florida: $100M • Atlanta: $157M • Tampa $131M Regional Deep Dive: Mid-Atlantic The Mid-Atlantic unanchored strip center market entered a transitional phase in 2024, showing signs of recovery after a volatile few years. Total transaction volume reached $494 million for the year—a 6% increase over 2023—fueled by a dramatic 925% surge in portfolio sales, even as individual deal volume declined 11.5% year-overyear. Despite a soft pricing environment in late 2024, with the average price per square foot dropping to $139 and cap rates rising to 9%, the market gained traction heading into 2025. In the first half of 2025, volume reached $243 million and pricing rebounded sharply to $219 per square foot, indicating a flight to higher-quality assets. According to Ed Laycox, EVP of Single & MultiTenant Retail at Matthews™, the Mid-Atlantic remains “a premier investment geography for any investor type,” owing largely to strong demographic trends. “The robust population growth in Virginia and the Carolinas has only fueled the investment appetite more,” he explains, noting that REITs, private equity firms, and family offices have all been especially active. The D.C. Metro and Secondary Market Dynamics In 2024, performance was led by the D.C. metro, which posted $211.8 million in volume–more than tripling its 2023 total and making it the clear focal point for regional investor interest. Laycox attributed the sharp pricing rebound in D.C. largely to replacement cost dynamics. “The cost to construct a new space for a tenant is very prohibitive in today’s market–the D.C. market in particular,” he says. “When you can buy a center 50-60% below replacement cost and still get a market cap rate, your future downside is limited.” This affordability relative to new construction is also helping drive retail vacancy rates in unanchored strip centers to all-time lows. Richmond also emerged as a bright spot, matching its prior peak with $52 million in volume. Meanwhile, markets like Philadelphia and Baltimore saw pullbacks, and Pittsburgh, Harrisburg, and Norfolk remained relatively muted. Small investors are moving to secondary markets of the Mid-Atlantic, chasing yield and lower price per square foot. Early 2025 data shows the D.C. metro leading the region with over $100M in transactions year-to-date, while Philadelphia is growing with $65M already transacted in H1 2025, already above 2024 volume. Shifting Capital Composition and Tenant Demand The capital composition of the market also began to shift. Institutional investors, after net selling nearly $97 million in 2024, returned in force in early 2025 with $55.7 million in net acquisitions— signaling renewed confidence in Mid-Atlantic retail opportunities. REITs were also active buyers in 2024, posting their largest net inflow in over a decade at $65.2 million. However, they have yet to record any deal activity in early 2025, suggesting a strategic pause or wait-and-see approach. As Laycox puts it, “the REIT and institutional investors are focused on the growth markets as they view these areas as opportunities for rent growth.” Laycox also notes a significant shift in tenant mix and demand patterns across the region. Big and medium-box spaces are increasingly being filled by experiential retailers and medical users such as “kids’ play concepts, bounce zones, urgent cares, and outpatient surgery centers.” Asset Performance: Urban Infill, Suburban, and Value-Add Urban infill and suburban strip centers are performing well across the region, buoyed by the replacement cost advantages and tenant demand trends Laycox highlights. However, he points out that value-add opportunities are rare. Because retail vacancy is low just about everywhere in the Mid-Atlantic, finding a value-add investment is VERY difficult. The ones that are out there generally have some challenging issues or are priced too high—or both. Altogether, these trends point to a market in the early stages of reacceleration, with institutional and private capital leading the way and investor sentiment steadily improving. Regional Deep Dive: Midwest The Midwest unanchored strip center market began showing signs of stabilization and recovery in the second half of 2024, following a two-year slump from the post-pandemic peak. After substantial yearover-year declines through 2023 and early 2024, quarterly sales volumes rebounded sharply–up 50.4% YOY in Q3 and 82.9% in Q4. The year ended with $986 million in total sales, primarily driven by individual asset trades, which comprised more than $950 million of the total. As of H1 2025, $517 million in deals have traded. According to Patrick Forkin, SVP at Matthews™, this surge is “a strong signal that buyer confidence is returning,” underscoring a shift in market sentiment. While transaction activity is on the mend, the market remains well below its 2022 peak of $1.75 billion. Still, pricing trends are encouraging. The average price per square foot is $145 as of H1 2025, and Class A assets record $310/SF, reflecting a clear flight-to-quality. Cap rates rose to 8.2% in Q4 but decreased to 8% as of Q2 2025. Forkin explains that while these elevated cap rates “reflect continued risk pricing, they’re also driving interest from yield-focused private buyers who dominate the region.” He notes that bid-ask spreads are narrowing and that “high-quality deals are moving,” especially in core cities like Chicago, Milwaukee, Indianapolis, and St. Louis. While the cap rate spread between premium and value assets has widened, the volume and pricing data suggest growing buyer appetite, particularly for well-located or stabilized properties. Supply Constraints and Owner Behavior The region’s inventory remains tight, largely due to the ownership profile. “The majority of these properties are privately owned by long-term holders who aren’t under pressure to sell,” Forkin explains. “When sellers believe they’re in a strong pricing window, they’re realistic and ready to transact. Otherwise, they’re comfortable holding for longer.” This dynamic has kept competition strong for quality assets and limited the flow of new listings to the market. Leasing Momentum Driven by Services and Restaurants On the leasing front, service-oriented users have taken the lead. Forkin highlights tenants like medical, dental, urgent care, pet services, salons, and fitness centers as the primary drivers of demand. “These tenants are prioritizing visibility and accessibility over co-tenancy with a traditional anchor,” he notes. Additionally, restaurant demand has increased, with fast casual and local operators expanding in suburban locations offering patio space and drive-thru capabilities. National credit tenants are still active, but the real change has been the rise of experiential and neighborhood-serving users over traditional soft goods. Private Capital Leads, Institutions More Selective ate investors have carried the momentum through the downturn and into the early stages of recovery, accounting for nearly 90% of volume in 2023 and 2024. Institutional and REIT buyers, while still present, have become more selective. “Capital hasn’t disappeared—it’s just more selective,” Forkin says, pointing to continued interest in large metros like Chicago and Minneapolis. He emphasizes that institutional capital is still drawn to the Midwest’s value proposition: “Cap rates here are often 100 to 150 basis points higher than in the Sunbelt or on the coasts.” However, he also notes that many assets in the region are smaller and individually traded, which “doesn’t always match the acquisition strategies of larger institutional players.” Cross-border capital, once a small but steady contributor, has almost entirely exited the market since 2020. If private capital continuous to lead and macro conditions stabilize, the Midwest strip center market is well-positioned for a more sustained recovery in the second half of the year. Suburban Strength and Urban Challenges Suburban strip centers are currently outperforming. “Suburban centers with strong demographics and daily-needs tenants are leading in terms of performance and liquidity,” Forkin affirms. These assets typically offer features like ample parking, high visibility, and flexible layouts—ideal for today’s tenant base. Urban infill assets, while still appealing for their long-term potential, face more immediate headwinds. Forkin cites reduced office occupancy, rising taxes, and population outflows in some cities as contributing factors to softened demand. “Several headwinds have impacted performance in recent years,” he notes, even as these assets maintain strategic value in dense, high-barrier markets. Focus on Stabilized and Light Value-Add Plays New construction remains limited, keeping investor focus on stabilized or lightly value-add assets. “Most investor activity is focused on centers where there’s upside through lease-up, renewal, or modest cosmetic improvements,” Forkin observes. The common thread? “The ability to support modern tenancy needs is key.” Regional Deep Dive: Northeast In 2024, the unanchored strip center market in the Northeast began a clean and measurable recovery after a turbulent 2023. Total transaction volume for the year reached $576.7 million, up 12.9% year-over-year, with a particularly strong Q4 showing $171.2 million, a 43.2% YOY increase. This rebound was driven largely by individual property sales, which totaled $526 million for the year–up 15.5% YOYwhile portfolio activity remained limited, accounting for just $50.7 million. In 2025, pricing strength returned. approximately $206.3 million in deals traded in the first half. While the average price per square foot increased to $201 in Q2, up 4.5% YOY and 16.4% above year-ago levels. Confidence among Northeast buyers remains strong despite modest growth, as investors pay premiums for high-quality, well-located centers. Joanna Manfro, Vice President at Matthews™ explains, Confidence stems from the Northeast’s historical resilience in all economic climates, often acting as a ‘flight to safety’ during turbulent markets. She notes that market downturns in the region tend to be less severe, often followed by quicker recoveries compared to trend-driven areas. This consistent historical performance continues to support buyer optimism, even amid broader economic uncertainty. Strength in Leasing and Pricing Following a strong finish in 2024, investor activity remained measured but focused in the first half of 2025. While overall transaction volume moderated, particularly in Q2, the market continued to reflect a selective but steady flow of capital targeting high-conviction opportunities. A total of 34 properties traded in H1 2025, with the majority occurring in Q1, underscoring a continued appetite for quality assets despite macro uncertainty. Cap rates held firm at 7.3%, unchanged from the prior year, suggesting sustained competition and disciplined pricing. Leasing fundamentals across the Northeast continue to support firm pricing. “The Northeast’s high barriers to entry and consistent demand generally support higher PPSF,” Manfro notes. She points out that while rent growth may be steady rather than rapid, the region’s lower risk profile and historical stability “justify the pricing for many investors,” helping to sustain elevated values. Early 2025 Momentum and Buyer Trends Looking into early 2025, momentum has continued, though at a more tempered pace. Investor appetite remains active, with private capital continuing to drive most activity. However, Manfro states that the buyer pool is broadening. “There’s increasing cross-regional interest, notably from California investors seeking stability amidst their market dynamics,” she says. “Some Southeast investors are also evaluating the Northeast for slightly better yields,” viewing the region as less competitive, but still fundamentally Sales Volume Source: RCA $1B strong, an alternative to their home markets. Institutional buyers also remain engaged, drawn by the Northeast’s long-term reputation for stability. Market Hotspots and Evolving Demand Certain submarkets within the Northeast are drawing heightened investor attention. “Suburban urban cores near major cities are attracting significant investor interest,” Manfro explains, highlighting areas such as Westchester, NY and Fairfield, CT, Northern New Jersey, NASA and Suffolk County, NY and Boston’s MetroWest region inside the 495 Corridor. These locations have “not only weathered the post-COVID landscape but have sustained growth and investor interest due to their appealing live-work-play lifestyle and accessibility to urban hubs.” Necessity-based retail remains the cornerstone of demand across the region. Manfro emphasizes that essential services—food, health, and fitness— continue to underpin stable occupancy, but she also sees emerging shifts. “The resilience of these core sectors suggests continued strong occupancy alongside potential growth in experiential retail and services catering to evolving suburban lifestyles,” she notes, pointing to a gradual diversification in tenant mixes as suburban consumer preferences evolve. Regional Deep Dive: Southeast The Southeast unanchored strip center market surged in 2024, emerging as one of the most active regions nationwide. Total transaction volume reached $2.14 billion–a 33.2% year-over-year increase–driven by robust growth in both individual and portfolio-level trades. Pricing metrics also strengthened, with the average price per square foot climbing to $230 and cap rates compressing to 7.1%, reflecting strong demand for neighborhood retail across the Sunbelt. That momentum has carried into 2025, with $1.5B closing as of Q2. Pricing rose further to $264 per square foot, though cap rates have ticked up to 7.3% amid recalibrated risk premiums and tighter financing conditions. According to Jeff Enck, Senior Vice President at Matthews™, the sustained surge in activity is no surprise. “Historically, the Southeast has imported a lot of capital from the West Coast and Northeast due to higher yields,” Enck explains. “That gap is narrowing, but the Southeast remains relatively attractive in terms of cap rates and price per square foot. Migration to metros like Miami, Atlanta, and Charlotte continues to rise–driven by job growth, business-friendly policies, and no or low income taxes. These factors are translating into persistent demand for essential-service retail.” Market Leaders and Regional Hotspots Miami/South Florida led all Southeast metros in 2025 with $283 million in sales, followed by Atlanta at $160 million, underscoring investor confidence in major gateway markets. Vacancy rates across the Southern U.S. remained exceptionally low, averaging under 4%, with standout markets like Nashville, Miami, and Raleigh/ Durham posting vacancies below 3%. The Carolinas, in particular, have emerged as a national hotspot for retail, supported by high occupancy (around 97%) and population growth across both urban and suburban corridors. Tourism-driven demand, especially in Florida’s coastal cities, further enhances the region’s appeal. Nearly every major MSA in the Southeast is in high demand. We’re seeing the most heat in high-income suburbs and dense, urban infill locations–particularly South Florida. That’s where some speculative pricing has emerged, but it’s really limited to those rare, high-end corridors. Shifting Capital Stack and Competitive Dynamics Private investors remained the dominant force in 2025, accounting for 79.4% of acquisitions, but the tide is beginning to shift. Private investors have become net sellers, prompted by refinancing pressures, maturing debt, and capital market headwinds. REITs, by contrast, stepped in aggressively, acquiring $141 million in 2024 and $136 million in H1 2025. Their share of acquisitions now hovers near 20%, signaling a growing appetite for high-quality, yield-generating strip retail. Enck says, There are still very few true institutions acquiring unanchored retail centers. Curbline is a rare exception–they’re replacing their entire portfolio of grocery and power centers with strip centers. Meanwhile, quasi-institutional groups and funds are focusing on well-located strips that trade below replacement cost and offer long-term upside. The challenge? There just aren’t enough quality properties to go around. Buyer demand continues to outpace quality supply, particularly for centers offering stable tenancy, belowmarket rents, or redevelopment potential. Enck notes that while public and private interest is rising, buyers are struggling to compete–especially in a landscape where top-tier assets are increasingly scarce. Interest Rate Pressure and Financing Trends High interest rates have reshaped the market’s financing dynamics. “Treasury yields have remained fairly flat in recent quarters, with some short-term dips,” Enck observes. “Savvy buyers have been able to lock in opportunistic rates, but in general, we’re seeing fewer deals close unless the asset is high quality and offers long-term stability.” Most financing is now coming from credit unions and life insurance companies. CMBS lending, once a staple of strip center financing, has all but dried up for these smaller assets. “Buyers are largely steering clear of short-term; high-leverage capital. Instead they’re targeting Class A or well-located Class B properties that pencil out under positive leverage. Class B and C assets are still trading, but only when they deliver yields above borrowing costs,” he adds. Tenant Mix and Leasing Fundamentals Tenant fundamentals remain strong in the Southeast, with unanchored strip centers attracting a growing mix of convenience, dining, and medical uses. “Coffee is still in growth mode,” Enck says, “Along with both franchise and local restaurants, urgent care clinics, dental offices, and veterinary users.” This evolving tenant-mix has helped keep demand high for available space, driving steady rent growth and keeping vacancy tight. In many cases, these newer tenants are backfilling older vacancies and stabilizing income streams, particularly in fastgrowing suburban trade areas. Outlook: Stability and Strategic Positioning The Southeast remains one of the most liquid and competitive regions for unanchored strip center investment in mid-2025. Private capital continues to drive the market, but institutional and REIT activity is rising. The investor profile is shifting toward buyers with long-term hold horizon and value-add strategies centered around demographic tailwinds and essential-service tenancy. “Southeast retail continues to offer compelling fundamentals,” Enck concludes. “You’ve got population growth, tax advantages, a strong tenant base, and pricing that still looks attractive relative to other regions. That’s a powerful combination–and one that keeps buyers coming back.” Regional Deep Dive: Southwest The Southwest unanchored strip center market demonstrated clear signs of stabilization in 2024 following the sharp downturn in 2023. Total transaction volume for the year reached $1.91 billion, up 12.9% year-over-year, driven by consistent individual property trades, which totaled nearly $1.77 billion. While Q4 volume declined 19.2% yearover-year–likely due to macroeconomic caution or closing delays–the full-year uptick and a 286% year-over-year surge in portfolio sales pointed to a reemerging wave of institutional interest. Early 2025 activity confirms renewed momentum, with $1.1B in transaction volume and 142 properties closed or pending as of Q2 2025. According to Grayson Duyck, Vice President and Associate Director at Matthews™, 2025 has been off to a roaring start, “we’ve been the busiest we’ve ever been, in Dallas specifically.” Pricing dynamics in 2025 are particularly strong. The average pricing rose 11.2% year-over-year to $214 per square foot. This pricing strength was accompanied by a 11.2% year-over-year increase in total square footage traded. Cap rates have decreased 20 basis points over the last year to 7%, reflecting broader repricing trends. Yet in 2025, cap rates dipped to 7% by Q2, indicating increased bidding activity for stabilized products. Duyck noted that investor psychology has shifted compared to a year ago. “People have gotten to the point where they’ve accepted market conditions and want to get deals done,” he explains. “Last year, buyers and sellers were far apart. Now, expectations have met the market.” Capital Flows and Investor Profiles The composition of capital in the Southwest continues to evolve. Institutional investors returned in force in 2024 with $84.7 million in net acquisitions but have reversed course in early 2025, registering $95.3 million in net dispositions–likely signaling profit-taking amid shifting macro conditions. REITs remained more cautious, contributing modest net acquisitions of $29.4 million in 2024 and $19.7 million in net dispositions in 2025 as they selectively reposition their portfolios. Private capital remains the most active and agile investor group, ending 2024 with a moderate $56.2 million in net outflows before returning to net buyer status in early the first half of 2025 at $110.2 million. Duyck says, Private owners are more willing to play ball. They don’t need to hit exact return metrics like institutions do. They can move faster and make decisions quicker, which gives them an edge in competitive environments. Tenant Trends and Leasing Fundamentals Southwest tenant demand remains robust, specifically in major Texas metros. Dallas, in particular, is seeing outsized activity from food and service users. “Restaurants are the most active in the market right now–especially franchise concepts and freestanding quick-service formats like Cava,” Duyck notes. “We’re also seeing a lot of boutique f itness–class-based models like pilates, yoga, barre, are outperforming the big-box gyms.” Many of these tenants are adapting to high rents by shrinking their footprints. “To combat higher costs, tenants are taking less space. They’re still doing strong business, but they’re being smarter with layouts,” Duyck adds. Strong regional brands continue to show a preference for well-located, unanchored centers–even over grocery-anchored formats in some cases. “These centers on busy streets are still pulling in great traffic,” he says. “Tenants are seeing the same performance they would in larger centers, without the institutional lease structure.” Drive-thru configurations also remain in high demand, although Duyck sees caution on the horizon. “Drive-thru space is red-hot,” he says. “But long-term, we’re going to see questions emerge around whether tenants can generate enough volume to justify the rent. It’ll be interesting to see how it plays out.” Construction, Constraints, and Regional Growth Despite strong leasing, development activity remains restrained. “Construction costs are still high, and vacancy rates are extremely low, especially in Dallas, where retail vacancy is under 4%,” Duyck explains. “Because there isn’t much new construction, rents have gone up. It’s getting very competitive.” This imbalance between supply and demand is driving renewed suburban expansion. “Collin County, Frisco, Prosper, Forney–those northern suburbs are booming,” Duyck says. “High-net-worth families are moving out of the city. Places like Kaufman County and Walsh Ranch–these thousand-acre master-planned communities–are drawing big interest.” Kaufman County has been recognized as the fastest-growing county in Texas and one of the fastest-growing counties in the nation. Austin also remains a bright spot for growth, thanks to its booming tech sector and rapid population gains. Along with Phoenix and DFW, Austin continues to be a top market for tenant absorption and new development, particularly for flexible, service-oriented retail formats that cater to growing suburban populations. Sales Strategy and Market Caution While pricing remains strong, Duyck advises that buyers need to approach new construction deals with caution. “Some of these centers have inflated NOI because of generous tenant improvement packages. The rents being paid now aren’t always replaceable,” he notes. “Exchange buyers, in particular, don’t always account for that. If you’re buying a deal, make sure the rent is sustainable in the long run.” Outlook: Normalization and Competitive Position The Southwest market appears poised for steady growth in 2025. Institutional participation may remain selective, but private capital is showing clear signs of renewed conviction. With pricing stabilizing and buyer expectations realigning, deal velocity is expected to improve–especially for well-located, Class A assets. “There’s so much growth and population expansion across the region,” Duyck concludes. “Investors have adjusted to the new normal, and we’re finally seeing that translate into real transaction volume. Everyone’s back at the table.” Regional Deep Dive: West The year 2025 is proving to be a pivotal recovery year for the Western U.S. unanchored strip center market. Total quarterly transaction volume reached $588M in Q1 2025 and $363M in Q2 2025, together the first half of the year represents close to a 40% year-over-year increase. Pricing trends further underscore renewed confidence: the average price per square foot reached $301, while cap rates compressed to 6%, marking a significant shift from the wider spreads seen in 2023. These metrics suggest growing competition for limited quality assets and optimism around income durability and long-term upside. According to Conrad Sarreal, First Vice President and Director at Matthews™, several structural and economic tailwinds are fueling the region’s momentum. West coast multi-tenant retail continues to experience aggressive bidding and cap rate compression–often 50-100 basis points tighter than similar assets elsewhere. California metros benefit from a deep pool of both private and institutional capital, particularly high-net-worth individuals and family offices. In cities like Los Angeles and San Francisco, cap rates can dip as low as 4.5% to 5.5% for prime locations. Metro Performance and Investor Focus Performance across key Western metros reinforces this recovery narrative. Los Angeles led the region with $625 million in 2024 transaction volume and posted a strong $249 million start in the first half of 2025, highlighting its central role as a gateway for both domestic and international capital. San Diego, Las Vegas, and Seattle also posted year-over-year gains in 2024 and 2025, underscoring investor interest in metros with strong demographic and economic fundamentals. Urban core strip centers in these cities continue to attract significant capital thanks to tight vacancy (96%+), rising rents, and an evolving tenant mix that reflects modern consumer preferences. “These centers are poised in dense, high-traffic areas near affluent neighborhoods and transit hubs,” Sarreal says. “West Coast multi-tenant centers increasingly feature experiential tenants–boutique fitness, craft breweries, and specialty services–now making up 1530% of new leases in 2025, especially in places like Los Angeles and Seattle.” Meanwhile, performance in San Francisco and Sacramento remained relatively muted. San Francisco has seen transaction volume fall sharply from its 2022 peak, with just $46 million recorded year-to-date, as investors remain wary of broader economic headwinds and a sluggish return-to-office trend. Urban Core Resilience and Market Fundamentals The structural strength of urban strip centers continues to set the western region apart. Development in dense urban cores remains constrained by sky-high costs and regulatory complexity. In cities like Los Angeles and San Francisco, urban retail development can cost $450$650 per square foot, while California’s CEQA regulations further slow the pipeline. As a result, new supply remained limited in 2024, adding just 0.2%0.5% of inventory in primary markets–boosting pricing power and tightening already low vacancies. “Despite population shifts, West Coast metros still benefit from high-income consumers and strong retail demand,” Sarreal notes. “With average occupancy rates between 95%-96%, tenant stability and consumer spending reinforce premium pricing.” He points to the concentration of wealth in cities such as San Francisco ($160,000 median household income), San Jose ($150,000), and Seattle ($120,000) as key drivers of tenant performance and rent growth. Capital Composition, Institutions Return, REITs Retreat Institutional investors have reemerged as key buyers, accounting for 11.9% of acquisitions in 2025 after remaining largely on the sidelines in 2023. This renewed activity signals rising confidence in the sector’s income durability and long-term upside. REITs, by contrast, have become net sellers, representing over 20% of dispositions so far this year. Private investors still dominate overall, but the buyer mix is shifting. “Secondary markets like Sacramento and Fresno are seeing growing interest from family offices and 1031 buyers,” notes Sarreal. “These investors are pursuing value-add players like lease-up or repositioning and are drawn by higher yields and lower pricing relative to urban cores.” Secondary and Tertiary Market Divergence While primary urban markets continue to anchor investment volume and pricing stability, secondary and tertiary markets are carving out their own roles. Sales Volume Source: RCA $4B Secondary markets such as Sacramento, Tacoma, and Fresno are gaining momentum with 10-12% investment growth, fueled by private capital and affordability-driven migration. Tertiary markets, including Bakersfield and Spokane, showed 7-8% growth, attracting smaller private investors willing to accept higher yield and risk exposure. Cap rate spreads illustrate the divergence: primary markets trade in the 4%-5% range, while secondary markets offer yields of 5.5%-6.5%, and tertiary markets reach 6.5%-8%. Outlook: A Repricing Moment with Strategic Opportunity Urban cores remain the benchmark for stability and institutional capital, while smart money increasingly targets secondary markets offering favorable yield spreads relative to borrowing costs. Tertiary markets remain opportunistic, but speculative bets. “Urban hubs provide long-term stability, but the real growth story may be in the secondary markets,” Sarreal concluded. “They balance risk and reward more effectively and offer a yield premium that looks increasingly attractive given where debt costs are.” As pricing stabilizes and buyer composition diversified, Western unanchored strip centers are once again positioned as a competitive asset class–both for core investors and value-driven players seeking durable income in a constrained supply environment.

CRE Trends You Won’t See in the Data

The retail landscape is in constant flux, shaped by evolving consumer behaviors, rapid technological advancements, and shifting economic tides. In this dynamic environment, staying ahead requires more than just reacting to trends—it demands a deep understanding of the market’s inner workings. At Matthews™, our market leaders are at the forefront of this transformation, navigating complex challenges and capitalizing on emerging opportunities. In this article, they share their invaluable insights, offering an inside perspective on the retail segment’s current state in their markets and the latest innovations driving the future of retail. Dallas, Texas The Dallas retail market benefits from a rare combination of strong population growth, corporate relocations, and business-friendly policies—but what often gets overlooked is how underserved certain suburban trade areas still are. While the headlines focus on legacy corridors like Uptown or Preston Hollow, pockets in areas like Prosper, Forney, Celina, and Midlothian offer compelling returns with significantly less competition. As such, leasing momentum has begun to pick up in suburban submarkets—especially in areas with new rooftops and school developments. The eastern end of Henderson Avenue is set for a major revitalization. Trend Tracker: Upcoming Buildouts Acadia Realty Trust and Ignite-Rebees have broken ground on a 161,000-square-foot mixed-use development spanning a quarter-mile between Glencoe Street and McMillan Avenue. “Designed by Dallas-based GFF, the project will feature 10 architecturally distinct buildings housing 75,000 square feet of retail space, 12,000 square feet of chef-driven restaurant space, and 74,000 square feet of office space,” Gross said. Top Retail Spot Katy Trail Ice House: It’s become a go-to for brokers, clients, & locals alike. It captures the essence of Dallas: casual, energetic, & relationship-driven. – Andrew Gross, Managing Director Houston, Texas Houston has enjoyed a low cost of living, in large part thanks to the metro area not having traditional zoning, Market Leader Patrick Graham stated. “Voters have rejected zoning ordinances multiple times,” Graham said. “Instead of zoning, we have private deed restrictions and municipal development regulations. That has massive implications on commercial real estate investments in this market.” “An investor should not buy or sell a commercial property without local representation to offer a guiding hand,” Graham said, “as implications from zoning can include uncertainty, risk, and planning challenges. This may be different from what an investor from a different market is accustomed to when their prior markets had strictly controlled local zoning ordinances,” Graham stated. Yet, without zoning, the market can react more quickly to supply and demand factors, he added. “If a shopping center or multifamily complex in Houston is charging above market rents because of high demand, the market will adapt,” Graham said. The lack of zoning represents a lower barrier to entry than more restrictive markets. Trend Tracker: Coffee Shop Moves “Payton Torres and Luke Armetta in the Houston office are representing a new concept coming to market called Black Sheep Coffee,” Graham said. “They’ll be adding locations in 2025 and 2026 throughout Houston. Any shopping center will be enhanced with Black Sheep Coffee as a tenant in an end cap with a drive-thru.” With 14 specialty coffee projects permitted through Q3 2025, Houston’s caffeine infrastructure continues outpacing national growth averages. Favorite Retail Spots Sitting out on the patio at Mendocino Farms for lunch in Uptown Park on a pretty day is hard to beat. True Food Kitchen in BLVD Place and Local Foods on Post Oak are across the street from our office and making me convert to a healthier diet. I do, however, still enjoy a smash burger-double with fries and a cookies and cream shake from Burger Bodega on Washington. Cleveland, Ohio Retail in Cleveland remains historically tight and recorded a 4.5% vacancy rate as of Q2 2025. There has been ongoing positive absorption for the past two quarters, with spaces being quickly leased up. Due to consistently high absorption levels, about 40% of available space is Class C, creating limitations for the already tight retail sector. According to Market Leader Matthew Wallace, the lack of space is a function of the lack of development over the last decade. The construction decline pushed the Cleveland retail sector to focus on experiential retail opportunities. Trend Tracker: Experiential Retail Due to shifting consumer preferences, experiential retail is the name of the game. “Experiential retail has come about in response to increased online competition and a refocusing of retailers on what the customer wants,” Wallace said. “Since those retailers are successful, space has become limited. You have to draw people in with great service, convenience, or unique value play. As experiential retail drives demand in Cleveland, Wallace added Crocker Park as a notable property that continues to lean into consumer experiences. Located in the Westlake submarket, the open-air mall boasts experiences from tenants like Color Me Mine, Urban Air Adventure Park, and The Escape Game. With its vast opportunities for consumers, Crocker Park recorded nine million visits in the last 12 months, and an average dwell time of 68 minutes. Retailers to Watch Dining: Local restaurants near me are where I splurge. Thyme Table, Boss Chick & Beer, & Taki’s Greek. Can’t get enough. Shopping: “Ticknors Men’s Clothiers at Beachwood Place Mall. Gotta look sharp! Denver, Colorado Supply is historically tight in Denver with approximately 381,000 square feet under construction, down 21.8% from 2024. “This scarcity of supply has created a landlord-friendly market and led to availability rates around 4.7%, which is among the lowest in a decade,” stated Brayden Conner, Associate Market Leader. As supply remains tight, Conner added that he expects leasing velocity in high foot traffic areas to remain high. “As we see Denver continue to grow, we are seeing tenants put more emphasis on being near areas with heavy foot traffic counts like Sloan’s Lake, Lower Highlands & RINO,” Conner said. “There is also increased demand in suburban submarkets like Parker, Lone Tree, and Thornton.” Trend Tracker: Development Spotlight “While Denver is known for its abundance of outdoor activities, including skiing, biking, golf, and hiking, its retail trends are casting a similar picture,” Conner stated. Conner also highlighted the ongoing movement for new developments across the metro. “Single-tenant development continues to be an arms race, with national tenants being the most aggressive on core locations,” he said. “New concepts are having to settle on locations outside the city. Regional brands like Swig, Good Times Burgers, and Mad Green continue to expand their footprints locally and are ramping up growth throughout the region.” As people continue to move to the area and prioritize experiences, entertainment venues and interactive retail concepts are driving demand. Standout Retail Location The Sloan’s Lake/Edgewater neighborhood, located west of downtown, is a market I would continue to keep a close eye on. Tennyson Street in that area has seen an uptick of luxury brands revitalizing the area. San Diego, California With expenses increasing across the county, investors need to be cognizant as to how this trend can impact their tenants, according to Market Leader, Keegan Mulcahy. “Expenses have been climbing substantially over the past two to three years, and owners who have gross leases have felt the pain as it eats into their NOI,” Mulcahy said. “However, even for owners with NNN leases, the trend still impacts their assets as tenants who are responsible for these expenses may be struggling to remain profitable.” This activity has led to a decreased number of tenants that can afford to pay the current market rents, in conjunction with the increased expenses. “Ideally, landlords can negotiate sales reporting clauses in their leases,” Mulcahy emphasized. For landlords, understanding their tenant’s store sales and profit margins is critical. Trend Tracker: Latest Retail Movement “Investment sales velocity is starting to see an uptick,” Mulcahy said. “Particularly, the uptick has been seen with lower price point assets that purchasers can acquire all cash or are utilizing very low LTV, which helps deals to still pencil with today’s interest rates.” Additionally, there are high volumes of opportunities with tenants who are backfilling vacant drugstores and bank branches. “With the amount of vacancy in both sectors, tenants and landlords are starting to get creative in ways to repurpose these buildings,” Mulcahy said. Favorite Retail Spots One Paseo – A ±23.6 acre mixed-use site boasting Class A office space, 40+ shops, & luxury apartments. Valley Farm Market – A grocer with top-quality groceries & ready-made food. Los Angeles, California Los Angeles retail is defying national trends. According to Market Leader Erik Vogelzang, infill locations are resilient, propped up by limited new supply and near-impossible entitlements. “This creates a supply-demand imbalance that keeps quality retail assets in demand,” Vogelzang said. He added that a shift is occurring in the retail market. “The focus is moving away from traditional shopping toward experiential retail—restaurants, bars, coffee concepts, boutique fitness, and wellness,” Vogelzang stated. People want to gather, not just transact. Trend Tracker: Expansion Movement “Stormburger is one to watch. Growing fast, brand-forward, and picking smart markets with precision. They’re building real brand equity early and it’s translating into smart expansion.” Top Retail Destinations “The Point in El Segundo hits every note. Lifestyle-driven, hyper-local, & constantly buzzing. Chapman Plaza in K-Town is another standout with heritage architecture & booming foot traffic. Culver Steps is carving out its own cool factor with creative energy, a great tenant mix, & a perfect fit for that Westside tech-meets-culture vibe.” Abbot Kinney in Venice is still a must-hit for brand exposure, walkability, & consistent consumer draw. Downtown Manhattan Beach is a strong mix of daytime & nighttime traffic. We just placed Bread Head there in a fantastic deal. The South Bay as a whole is having a real moment.” Phoenix, Arizona Following the low retail vacancy rate trend across the country, Associate Market Leader Milton Braasch stated that Phoenix recorded a record-low vacancy rate of 4.6% during 2024. “In a broad national market that is facing headwinds, the investment and continued population growth of the Phoenix metro can somewhat insulate the market to see continued strong performance,” Braasch said. Braasch added that Maricopa County, which encompasses the Phoenix metro, is one of the fastest-growing counties by population growth nationally. “I am continuing to watch this trend as we move through 2025 as it will drive where our market is headed,” Braasch said. “I foresee this growth continuing in all parts of the Valley, which will continue to push our CRE market forward as a pacesetter in the United States.” More people = more demand More demand = economic growth Economic growth = CRE prosperity Trend Tracker: Transaction Movement “The biggest challenge we face in the transaction market continues to be navigating the cost of debt and managing the bid-ask spread as brokers,” Braasch said. “The more realistic we can be with clients on current market conditions, the more often we can bring out deals that are priced to sell, versus pricing six months in the past with deals that do not pencil for buyers.” Thriving Restaurant Scene “The Phoenix restaurant market is one that is always evolving. With the revitalization of Downtown Phoenix & the continued growth of Scottsdale, new restaurant concepts are always coming into the Valley & looking to expand their footprint.” “I am a food-forward person, so my favorite thing to do is find new great restaurants. Though it is hard to keep up with trying them all since so many new concepts are popping up all the time.” Nashville, Tennessee The ongoing population increase in Nashville led to a rise in retail demand, pushing the vacancy rate to 3.3% as of Q2 2025. This is a continuing trend for the metro as vacancy has been below 3.5% since 2022. “It feels like all of Nashville is increasing significantly,” stated Managing Director Hutt Cooke. “There has been consistent demand in Nashville for nearly a decade.” Cooke stated that a prominent factor for Nashville is its investment community. “The largest landlords in this market did not just get lucky by being in Nashville,” he expressed. “They saw the growth and opportunity and took advantage of it.” The metro’s strong investment environment is also aided by the variety of investors coming to Nashville. “In recent years, we have had a lot of coastal capital come into the city and pay extremely high prices,” Cooke added. “Local folks have a low cost basis, keep up with market rent, and cash flow. Different business models and they both can work.” Tenants and investors see the long-term growth of Nashville and want to be a part of it. Trend Tracker: QSR Competition According to Cooke, investors should keep an eye out for new QSRs coming to Nashville. “QSR operators are exploding the Nashville market,” he said. “We are seeing new corporations make a big splash in Nashville to keep up with their competitors.” New QSR tenants are taking over projects under 10,000 square feet, with tenants like Dutch Bros Coffee and Whataburger actively expanding in Nashville. Dutch Bros Coffee recently made a move in its growth plans by leasing a space in Murfreesboro that will be its 13th store in the metro. Newcomers and Local Favorites “I am very excited about the new Italian sandwich shop, All’Antico Vinaio. They recently opened two new locations in Nashville.” “Being located in Broadwest, I go to Halls at least once a week. It is hard to beat a Halls Chophouse Steak.” Chicago, Illinois While investors may target areas like The Loop or Magnificent Mile, other locations are important to track for their strong performance, according to Market Leader Joshua Bluestein. Bluestein added that performance levels are varied across Chicago. “The areas with the most increase in sales and leasing velocity are in single-tenant and high-traffic corridors, as well as Chicago suburbs,” he said. “In the suburbs, vacancy rates have dropped to a near 20-year low, mainly due to quite a bit of new development.” Meanwhile, core areas are noting a slowdown in performance. “Leasing and sales are slowing down in Downtown Chicago, such as The Loop and River North,” Bluestein added. “Vacancy rates in The Loop are about 30% with concerns over high rent costs, staffing, and safety issues.” The south and west sides of Chicago are showing great promise and growth, driven by strong local demand and limited e-commerce penetration. Trend Tracker: Value and Luxury Retailers “The most active retailers in the Chicago MSA right now are value-oriented retailers like GAP and Uniqlo who are making a splash with new locations in core, high traffic areas, such as Michigan Avenue,” Bluestein said. “Premium and boutique brands, like Hotel Chocolat and Marine Layer, are also adding new locations. These higher-end brands are targeting areas like Lincoln Park for their stores.” Areas to Monitor “Chicago is full of neighborhoods with great retail like Gold Coast and Lincoln Park. There is retail for everyone in Chicago!” “The Gold Coast is especially popular as the area consists of high-end retailers, such as YSL, Peter Millar, among many others. The area also boasts quite a few high-end restaurants and upscale hotels, like the Waldorf Astoria.” Northern New Jersey, New Jersey Associate Market Leader Jermaine Pugh stated that while Hudson County may be overlooked for nearby New York City, it offers a variety of retail opportunities. “Hudson County’s Gold Coast shares many of the same development fundamentals as Brooklyn, with strong rent growth, prime lots, and ideal conditions for transit-oriented, mixed-use projects,” Pugh said. “Unlike New York City, the area benefits from pro-growth local governments, streamlined approvals, and more landlord-friendly rent laws.” Pugh added that cities like Jersey City, Hoboken, and Weehawken offer a more efficient and profitable development path without the regulatory burdens faced in New York City. Yet, Pugh said that the bid-ask gap is necessary to watch as it is occurring on most active listings. “Buyers can’t raise their offers, due to current high interest rate pressures, while sellers are reluctant to lower prices since they can’t clear their debt at reduced price points,” he emphasized. “This disconnect will likely come to a head as loans mature, forcing owners to either sell or inject additional equity to meet loan-to-value requirements.” These tenants drive demand in mixed-use and grocery-anchored centers, especially in suburban and transit-oriented areas. Trend Tracker: New Tenant Arrivals According to Pugh, the most active retail tenants are food and beverage operators, boutique fitness and wellness brands, and healthcare or daily-needs service providers. Some particular tenants adding new locations in the area are CAVA and Sweetgreen as Pugh said they are targeting New Jersey suburbs with high-income demographics for their growth. CAVA is adding new locations in East Brunswick, Union, and Marlton; meanwhile, Sweetgreen is delivering properties in Morristown and Westfield, with the Westfield location recently opened. Top Retail Destinations “The best retail spots are in Northern New Jersey’s Gold Coast. Hoboken’s Mile Square is an eclectic mix of national retailers, trendy boutiques, & authentic global cuisines.” “A go-to spot is Downtown Montclair. This affluent suburb is known for its vibrant arts, culture, & dining scene. Its main retail strip—Bloomfield Avenue—thrives on high-end shops, boutique fitness, bookshops, indie cafés, & experiential concepts that align with the community’s creative energy.” New York, New York As Manhattan multifamily, mixed-use, and retail-driven property values have remained relatively stagnant since Q2 2023, a once-in-a-decade opportunity is presenting itself for investors to purchase at 10-year highs for yield and 10- to 20-year lows on a price per square foot basis, depending on property location and degree of rent regulation. The market is currently experiencing the longest sustained duration of offering properties for sale in downtown Manhattan with above 6% yields since 2010-2011, as well as multifamily buildings selling for below $500 per square foot, which has also not occurred in prime downtown markets since 2010-2011. Trend Tracker: Transaction Movement The Matthews™ New York specialists are currently marketing properties in Chelsea at pricing that is 25-30% lower than where comparable properties sold for on a price per square foot basis in 2015, showing that upside in both yield and basis is available. The current interest rate environment will create opportunities for future recapitalization, appreciation, and outsized returns in a market that has historically had the highest barrier of entry. Transaction volume will likely remain low, while first-time Manhattan buyers continue to find attractive yields. Both pricing and volume will increase when the Federal Reserve begins a consistent campaign to target lower interest rates. Why New York? We look for people who have spent time here, are enthusiastic about what the city offers, and recognize its uniqueness is not something you can find anywhere else. “The energy you feel in the city reverberates off the density of the buildings around you and what goes on within their walls. If a candidate’s eyes light up when they talk about the possibility of working on that as a product of their profession, then they’re probably for us,” Cory Rosenthal, Executive Managing Director & National Director, Multifamily

Andrew Gross

Senior Managing Director

9/19/25

Industrial Evolution

Top Industrial Activity in a Transforming Market The national industrial sector noted a supply increase throughout the last few years, leading to a vacancy rate of 7.1% in Q2 2025. Absorption levels have struggled to adjust to the oversupply, and potential tariffs could further impact the segment. However, new trends have begun to appear, which could aid stabilization moving forward. Data Center Boom Rising demand for AI production across the country has led to the rapid expansion of data center facilities. Due to this increase in demand, AI companies contributed to more than 50% of the growth in U.S. data centers in 2024. Some recent operators that leased data centers include Equinix, Aligned Data Centers, DataBank, and Vantage Data Centers. Now, competition is on the rise, and giants like Microsoft, Meta, and Google are expanding their data center operations nationwide. With this growth, the data center construction market is forecast to reach $112.33 billion by 2030. Doc Perrier, Vice President and Director, noted Houston as a top performer for data center additions. “With significant investments from companies like Apple and Nvidia, there’s a surge in demand for high-performance computing hardware and AI server components,” Perrier stated. Apple’s entrance into Houston includes an upcoming 250,000-square-foot facility that is set to produce in-house AI servers, aligning with the broader trend of tech-driven manufacturing. To continue Houston’s standing as a powerhouse for data centers, Perrier stated that Texas Tax Code 313 and the availability of low-cost power will aid new data center developments. Benefits to Track Data center owners will see a variety of benefits when taking on a property. According to Vice President Andrew Wiesemann, “owners benefit from stable long-term income from credit tenants, as well as high barriers of entry, due to regulatory and zoning constraints.” Owners will also find the longer leases for these facilities enticing as terms range from 3 to 10 years, creating stability with the tenant. Data centers are capital-intensive, with costs based on megawatt pricing, charging tenants based on power usage. “You need the right power, the right fiber, and the right team to get them [data centers] off the ground,” Vice President Nick Watson said, “but if you can check those boxes, they’re a rock-solid play.” From where I sit, they’re quickly becoming the backbone of our digital economy,” Nick Watson, Vice President. IOS Update The IOS segment has recorded a strong rise in additions as institutional investors have shifted focus to this property type. “New developments all over the country have begun, due to evolving tenant requirements,” Wiesemann noted. “I expect to see more portfolios being sold or recapitalized throughout this year as well.” Notable IOS acquisition activity occurred in the first half of 2025, with Texas standing out as a prominent location for IOS growth. In January, Alterra IOS acquired four properties in Dallas-Fort Worth that total 34.9 acres; then in May, it acquired two sites in Austin and San Antonio that total 8.7 acres. Texas metros are favorable locations for IOS, due to population growth and the state’s convenient central location. One ongoing trend that First Vice President and Senior Director Chris Nelson noted is the varying performance in IOS properties depending on square footage. Nelson stated that the owner-user exit isn’t as available on larger sites, meaning owners have to lease and trade as a leased investment in order to get out of the project. “The basis of many of these initial acquisitions and, in turn, the lease rates needed to make the projects make sense are objectively high, although achievable,” Nelson explained. When negotiating for an IOS property, owners must ensure they are finding an adequate price. “The IOS space still has strong demand, but for the right price,” Associate Market Leader Carter Hadley said. Moving forward, areas to watch are well-located IOS sites with high barriers to entry as these will continue to outperform, according to Vice President Jacob Friedman. Small IOS is very hot, while large IOS is a mixed bag,” Chris Nelson, FVP & Senior Director. Shifts in Demand Across the country, industrial construction has transitioned to smaller facilities under 50,000 square feet. The new focus on these properties is largely due to the oversupply of facilities over 100,000 square feet, which saw an influx in deliveries over the past couple years. Owners and tenants are now prioritizing smaller spaces as they offer many advantages. Due to the influx of larger properties, smaller industrial facilities noted less supply availability. However, tight vacancies for properties with less square footage allow for the ability to securely keep tenants on short-term leases without vacancy fears. “This allows for continued rent increases, which will match rent growth in strong areas and inflation in general,” Watson stated. Certain markets are already seeing this transition in their industrial segments. Chris Nelson noted this trend increased in Southern California, specifically for small-bay, multi-tenant facilities. “Southern California continues to remove industrial product from the market in favor of multifamily redevelopment, and the small-bay segment continues to be a main target for that,” Nelson said. “Generally, many of the business parks are in infill areas and have total scale that makes sense to be able to build a residential project of enough density to pencil.” Nelson added that as more rooftops are built in infill areas, there will be more demand for small industrial properties to house the tenants that provide goods and services to them. “Look forward to continued strong rent growth in this product segment in the years to come,” Nelson emphasized. Texas Activity In Houston, Doc Perrier noted he expects to see continued rent growth for properties under 100,000 square feet, as well as an interest in crane-served buildings. “We are seeing an increase of manufacturing tenants in the market, and due to the lack of development over the past 10 years of crane buildings, vacancy is around 2.5 percent,” Perrier said. Most of the crane-served buildings in demand are in the 20,000 to 70,000 square foot range. As such, Perrier stated that tenant requirements for manufacturing facilities surged nearly 300% in the first half of 2024 compared to 2020. “This uptick in demand is driven by companies seeking to onshore production and capitalize on Houston’s port proximity and strong infrastructure,” Perrier explained. “Houston’s industrial market is transitioning from a phase of oversupply to a more balanced state.” Demand for strategically located, mid-sized facilities remains strong,” Doc Perrier, FVP & Director. Industrial Predictions The institutionalization of the segment is one factor that will aid activity in years to come. “Institutional capital is now flowing into specialized industrial segments, such as small-bay properties, IOS, and Class B/C assets under $5 million in high-performing markets,” Watson said. “This trend is expected to persist as these niches gain broader recognition for their stability and long-term upside.” Vice President Spencer Mason also stated that as industrial construction slows down from the COVID-19 development surge, the lull will create positive effects in most major and secondary markets moving forward. “This includes stronger absorption, declining vacancy rates, increased leasing activity, and continued rent growth,” Mason expressed. Additionally, Mason added that as key unknowns, like tariff policies, begin to stabilize, the segment can expect a resurgence in activity. “Investment groups will be more willing to re-engage, and developers will be poised to break ground on new projects as market fundamentals continue to strengthen,” Mason said. Looking Ahead Investors should ensure they are aware of ongoing shifts and how they can impact investments. While there will always be changes in the sector, industrial remains ready for growth. Industrial is poised to adapt to any market and make itself a benefactor to the world,” Carter Hadley, Associate Market Leader.

Andrew Wiesemann

First Vice President & Associate Director

9/3/25

Stability: The Key to Unlocking Multifamily Market Momentum

Where Do We Go From Here? An unfiltered look at the U.S. multifamily market in 2025, where instability, rising debt maturities, and investor caution collide with resilient demand and signs of stabilization. The U.S. multifamily market is navigating a complex, transitional period, marked by both mounting pressures and promising opportunities. In a wide-ranging conversation that touched on multifamily investing, fiscal policy, and investor psychology, Capital Markets FVP and Director Clark Finney delivers an unfiltered assessment of the sector’s central challenge. “Markets that are dependent on economics thrive in stability. And any level of marginal stability that people can count on will naturally increase transaction volume,” he says. It isn’t interest rates or recession fears–it’s instability. Instability continues to shape the multifamily landscape, as macroeconomic pressures—including elevated interest rates, persistent inflation, and a growing national debt—apply sustained downward force. The wave of upcoming debt maturities adds another layer of complexity, presenting both challenges for existing owners and opportunities for well-capitalized buyers. Yet amid these headwinds, early signs of recovery are emerging. Capital markets, while still wary, are beginning to show increased liquidity and a gradual return of financing options. Meanwhile, resilient tenant demand and a rebalancing of supply dynamics have helped correct property values, with recent trends indicating that the sector may be approaching a period of stabilization. “Stability, however incremental, is what will unlock value”, Finney adds. PRE-COVID to Present: A Shift in Chaos, Not Clarity Finney’s perspective on the multifamily market is both lived and learned. “I grew up in multifamily, literally in an apartment,” he reflects. Now entrenched in the capital markets as a broker, Finney has witnessed firsthand how volatility, fiscal and monetary policy, and investor psychology have redefined the sector’s landscape. “It’s been a treadmill,” he said of the post-COVID period, marked by surging yields, overleveraged bridge loans, and policy whiplash. “Progress? Maybe. But we’re still on edge.” Now in 2025, interest rates remain elevated and erratic, a defining force in the commercial real estate market’s cautious posture. “The 10-year Treasury was 4.5% last year, and it’s 4.5% today,” Finney observed. “But the real shift has been psychological.” The industry has begrudgingly accepted a new normal, where buyers, sellers, and lenders have recalibrated expectations and started to transact, despite elevated borrowing costs. The new normal, however, is anything but straightforward. The Federal Reserve’s monetary policy has been a major influence on rate dynamics, driving the effective federal funds rate to 4.33% by May 2025 after an aggressive tightening cycle. While Fannie Mae forecasts a gradual decline to 3.9% by Q4 2025 and 3.1% by Q4 2026, the behavior of the 10-year Treasury yield has told a different story. Between September and December 2024, even as the Fed began cutting shorter-term rates, the 10-year Treasury yield rose from roughly 3.6% to 4.8% by mid-January 2025. This counterintuitive movement, where long-term rates increased even as short-term policy rates fell, created a disconnect that further complicated financing conditions for commercial real estate. Investors demanded a greater yield to compensate for long-term inflation uncertainty, pushing commercial mortgage rates higher just as the market was hoping for relief. Recent Treasury data reflects this volatility: Jan: 4.63% Feb: 4.45% Apr: 4.28% May: 4.5% While Fannie Mae projects the 10-year to average around 4.3% through 2025 and 2026, with a modest drop to 4.2% in Q4 2025, many in the industry, including Finney, remain skeptical that rate stability is imminent. Persistent interest rate turbulence has had a ripple effect, especially on loans originated during the lowrate years of 2020-2021. Many of these were shortterm, floating-rate deals that are now maturing into a much harsher environment. The result is a growing number of “performing matured” loans–deals past their maturity date but still active under extension agreements. Refinancing in today’s market is no easy feat. “There’s no product out there that’s going to save some of these borrowers,” Finney admits. Yet, he also sees a silver lining: this stress is giving rise to innovative structured finance solutions and creating openings for well-positioned buyers. The market has finally accpeted that this is what it is. That mindset shifthowever reluctant–has at least brought some clarity. And clarity, even at higher costs, is better than chaos. The Three Pillars of Progress: Expectation, Volatility, Equity 1. Expectation Management After years of dislocation, buyers have adapted to underwriting deals with 5.5% coupons, and sellers have relinquished the dream of 2021-level valuations. “Nobody loves these numbers,” Finney admitted, “but at least we all know where we stand.”This alignment has injected some life back into originations and transactions. “There’s finally a shared baseline,” Finney says, “and that alone has brought people back to the table.” 2. Volatility in the Bond Market Persistent rate volatility continues to paralyze confidence. “The 10-year Treasury is bouncing 20 basis points every other week,” Finney explains. “How can you close a 90-day deal when your cost of debt keeps changing?” Indeed, long-term rates, critical benchmarks for 75-85% of all multifamily loans, remain erratic. “Even if people don’t love a 6.5% coupon,” Finney notes, “they’d rather that than a world where it might be 6.0% one day and 7.2% the next. Predictability, even when painful, enables action.” 3. Equity on the Sidelines Despite headlines about “dry powder,” most investors aren’t deploying. “It’s not that the numbers don’t work, it’s psychological,” Finney emphasizes. “People are shell-shocked. They’re keeping cash in the bank, bracing for their kid’s tuition, a new car, or a 7% mortgage reset.” Even institutional investors are hesitant. “There’s barely any equity out there. Every deal we’re working on right now, even great ones, has an equity shortfall.” Finney attributes this to widespread risk aversion and a pervasive wait-and-see mindset, exacerbated by macroeconomic crosscurrents. Inflation and the Erosion of Confidence Inflation remains elevated, with the Consumer Price Index (CPI) now 13% above pre-COVID trends. Headline Personal Consumption Expenditures (PCE) inflation is forecast at 3.2% for 2025, revised upward due to persistent supply chain disruptions and the inflationary impact of new tariffs implemented earlier this year. “Every time we feel like inflation is under control, something else throws fuel on the fire,” Finney says. “Whether it’s government spending or tariffs, it all finds its way into pricing and into people’s heads.” This inflation dynamic has direct implications for multifamily owners: rising insurance premiums, property taxes, maintenance costs, and construction expenses. These all erode net operating income. At the same time, tenants’ rent thresholds are hitting affordability ceilings. “You want to push rents to offset costs, but you can only push so far before you lose tenants,” Finney explains. “We’re walking a tightrope.” Fiscal Instability and its Spillover Effect With the national debt surpassing $36 trillion and projected to hit $46 trillion by 2035, all three major credit rating agencies have downgraded the U.S. government. This has raised borrowing costs and injected further uncertainty into long-term capital markets. The debt-to-GDP ratio: FY 2024: 123% 2025: 100% 2035*: 118% *projected to surpass historical peaks “What the bond market needs is a signal that we’re even trying to fix this,” Finney says. “But instead, we’re cutting taxes and increasing spending. You can’t run a country like that and expect confidence to hold.” As sovereign risk premiums rise, multifamily borrowers are directly impacted. Higher Treasury yields mean more expensive debt, which in turn depresses property values and complicates refinancing for assets already struggling with high leverage. New trade policies have added another layer of complexity. Tariffs introduced in early 2025 are expected to reduce long-run U.S. GDP by nearly 1%, while increasing consumer prices. “We’re basically taxing ourselves for no gain,” Finney says. “And it’s creating stagflation risk–lower growth and higher prices. That’s the worst combo for real estate.” Recent economic forecasts are reflecting that concern. The Congressional Budget Office (CBO) projects real GDP growth to slow from 2.3% in 2024 to 1.9% in 2025. The Survey of Professional Forecasters goes further, lowering its 2025 GDP forecast to just 1.4%. “It’s like we’re on the edge of a soft landing,” Finney notes, “but one gust of bad data could turn it into a crash.” Household Stress Beyond the headlines, Finney is keeping a close eye on consumers. Auto loan delinquencies have risen sharply, and Buy Now, Pay Later (BNPL) defaults are creeping up. “People are still spending, but a lot of it is on credit or deferred payments.” “It tells me middle-class America is stretched thin. That’s the renter base for most of these Class B and C properties,” Finney warns. “If they start pulling back, demand softens, and that hits landlords hard.” Despite financial strain, U.S. retail sales rose 5.2% year-over-year in April 2025, and international travel volumes exceeded pre-pandemic levels. “It’s the paradox of this market,” Finney reflects. New and used vehicle sales also continue to recover, and restaurant spending remains strong. While encouraging, Finney urges caution: “The consumer is propping up this recovery, but it’s built on a fragile foundation. If job numbers slip or credit tightens further, it could turn quickly.” Equity Market Optimism vs. Real Economy Conflict Meanwhile, equity markets have surged to record highs, with the S&P 500 breaking 6,100 in early 2025. But Finney remains wary of drawing parallels to the real estate market. “The stock market is not the economy. Just because Apple’s up 12% doesn’t mean your cap rate is dropping.” He points to concentrated gains in tech, the anticipation of future Fed cuts, and excess liquidity as drivers of market euphoria. “We need to be careful not to let Wall Street’s optimism distort Main Street’s reality.” Soft vs. Hard Landing: Preparing for Both The road ahead is uncertain, and Finney believes multifamily investors need to prepare for both upside and downside scenarios. If inflation moderates and the Fed cuts rates gradually, there’s potential for a late-2025 recovery. But if consumer stress deepens or trade-related inflation spikes, recession risks mount. If inflation moderates and the Fed cuts rates gradually, there’s potential for a late-2025 recovery. But if consumer stress deepens or trade-related inflation spikes, recession risks mount. “If earnings fall and layoffs rise, that’s when the equity drawdown happens,” Finney warns. “And that’s when a lot of real estate valuations get re-tested.” “Scrappy operators are still getting deals done,” Finney says. “But you have to be disciplined. The winners in this market are going to be the ones who underwrite conservatively, structure.” As for what will mark the real turning point? “When expectations are managed, bond markets calm down, and equity comes off the sidelines—that’s when the engine restarts,” Finney says. “Until then, it’s about survival and positioning.” Multifamily Market Performance: Stability Emerging From the Storm The multifamily sector in 2025 is working through a turbulent yet transitional period. While macro-level uncertainty continues to weigh heavily on capital markets, property-level fundamentals are showing signs of stabilization. “Deals are getting done… just not home runs,” Finney says. “If the rate holds steady, people can underwrite again. It’s not pretty, but it’s stable.” Supply and Demand: A Narrowing Gap: Following the pandemic-era construction surge, new supply is finally cooling. Multifamily starts are down 74% from 2021 peaks, and permit activity dropped 24% in 2024. Deliveries remain elevated, but the pipeline is shrinking. Absorption rates have recovered from 2022 lows 2024: +550K Units Absorbed 2025: 370K* *projected Vacancy rates peaked at 6.0% earlier this year but are now tracking toward 4.9% by year-end as demand steadies and completions slow. Rent Growth and Tenant Sensitivity After explosive growth in 2021–2022, rent increases flattened out in 2023 and early 2024. Fannie Mae projects a 2–2.6% growth for 2025, with a potential rebound in 2026. Still, affordability ceilings are real. “You’ve got tenants walking away over $25,” Finney notes. “It’s not just about comps anymore—it’s about real-life budgets.” The percentage of units offering concessions remains high, especially in oversupplied metros. But Finney emphasizes that this is cyclical: “A lot of these markets are just digesting supply. If they can get through this year without bleeding rent rolls, they’ll be in better shape next year.” Investment Activity is Thawing Property values are still down more than 20% from their 2022 highs, but recent cap rate compression hints at a turning point. Investors are beginning to step in, drawn by lower basis deals and improving yield profiles. “You’re not going to get rich overnight,” Finney says. “But if you can buy at or below replacement cost, solve the debt side creatively, and wait out the volatility—there’s money to be made.” Transaction volumes remain well below pre-2022 levels, but momentum is building. Q4 2024 saw a 33% quarter-over-quarter increase in volume, and major investors like Blackstone and KKR have re-entered the market with multi-billion-dollar multifamily acquisitions. Finney sees this as a pivotal moment: “Smart capital is sniffing around. Everyone’s hunting for value-add. Turnkey deals are a harder sell right now unless they’re deeply discounted.” Regional Dynamics: No More National Plays The days of nationwide one-size-fits-all strategies are over. Some Sunbelt markets, flush with pandemic-era development, are facing weak absorption and rising distress—Houston, for instance, has a criticized loan share of 38%. “If you’re not underwriting block-by-block, you’re missing the mark,” Finney says. “The spread between top and bottom quartile markets has never been wider. This is where local knowledge is a must.” Meanwhile, legacy markets like New York and Los Angeles are showing quiet resilience, with vacancy tightening and rent growth returning. Loan Maturities: The Quiet Reckoning A wave of multifamily loan maturities is underway, and many borrowers are running out of options. “They’ve extended two, three times. Now lenders are saying, ‘we’re done,’” Finney adds. With nearly $1 trillion in commercial mortgages maturing in 2025 alone, borrowers who financed under ultra-low-rate conditions in 2021 are facing refinancing hurdles in a much tighter credit environment. Many are pursuing creative capital stacks involving structured notes, mezzanine debt, and preferred equity. But for some, Finney is blunt, “there’s no product that can save them. They’re handing back the keys.” The rise in “performing matured” loans—those technically past due but kept alive through short-term extensions—indicates mounting pressure beneath the surface. “These aren’t going to hit the open market,” Finney notes. “The lender doesn’t want their dirty laundry out there either.” Instead, expect many troubled assets to quietly change hands through off-market placements with well-capitalized buyers. Despite the looming maturity wall, capital is beginning to flow again. Total commercial and multifamily mortgage borrowing and lending is projected to increase by 16% to $583 billion in 2025, up from $503 billion in 2024. Multifamily lending alone is expected to reach $361 billion, also a 16% increase. The Mortgage Bankers Association (MBA) anticipates further growth in 2026, with total CRE lending reaching $709 billion and multifamily accounting for $419 billion. “People finally stopped holding their breath,” he said. “Once sellers, buyers, and lenders aligned on what ‘normal’ looks like, even if it’s not ideal, deals started to move again.” Finney attributes this rebound to improved pricing transparency and more widespread acceptance of current market conditions. Multifamily loan spreads narrowed 149 bps, reaching their lowest point since Q1 2022. This tightening of spreads is a positive development for borrowers, indicating increased competition among lenders. Banks led with a 34% share, up from 22% in Q4 2024, reflecting strengthened balance sheets and a favorable regulatory environment. CMBS conduits emerged as the second most active group with a 26% share, a substantial increase from 9% a year prior. Life companies maintained a steady 21% share. In contrast, alternative lenders, including debt funds and mortgage REITs, saw their share decline sharply to 19% from 48% a year earlier. Government agency lending for multifamily assets also saw a 15% year-over-year increase, reaching $22 billion in Q1 2025. Conclusion: Stability Through Selectivity The U.S. multifamily market enters the second half of 2025 at a pivotal juncture, pressured by economic headwinds, yet buoyed by solid fundamentals and improving capital flows. While global dry powder remains plentiful, investor sentiment is cautious, shaped by stagflation fears, rising delinquency signals in consumer credit, and policy volatility. In this environment, capital is becoming more selective—flowing into resilient sectors like multifamily, but only where risk is matched by compelling upside. Finney offered a grounded perspective: “The next three months are going to be extremely telling.” With inflation, trade dynamics, and consumer behavior all in flux, market direction could swing sharply. Still, Finney is guardedly hopeful. “We survived 2024,” he said. “And if I’m being honest, I feel more confident about America today than I did a year ago.” Ultimately, multifamily investing in 2025 is less about timing the bottom and more about navigating volatility with discipline and vision. “Real estate’s not rocket science,” Finney added. “It’s who’s willing to work the hardest, the longest, to find the deal that pencils.”In a market defined by complexity, that scrappy persistence—and a clear-eyed view of risk— may be the greatest competitive advantage of all.

Clark Finney

First Vice President & Director

9/3/25

Q225 Houston Retail Market Report

Q2 2025 Houston Retail Sales Performance Market Overview Retail investment activity is breaking record highs in the second quarter. Buyer demand is at its strongest level in three years. Leasing activity is decelerating with significant drops in tenant tours and rental rates. The vacancy rate saw a slight increase from 5.5% to 5.57% year-over-year as 448,000 SF of new product, up almost 40% from last quarter, was delivered. Net absorption is near record lows, as move-outs rise and new deliveries outpace demand. Availability is highest in older, lower-income areas. New construction is limited due to increasing costs, resulting in a shortage of high-quality space. Discount retailers, QSRs, and fitness users are driving most leasing. Still, headwinds like soft consumer demand, higher costs, and negative real rent growth are creating pressure. The outlook is mixed, with risks tilted slightly to the downside. Macroeconomics: Federal Fund Cuts Interest rate cuts in 2025 have totaled 50 basis points year-to-date, have begun to positively influence Houston’s retail investment market. Lower borrowing costs have made debt more accessible, encouraging sidelined buyers to re-enter the market and boosting overall transaction volume. In Q2 alone, key Houston submarkets recorded 28 single-tenant retail deals, signaling a noticeable uptick in deal velocity. Notably, buyers showed a willingness to pursue larger assets, as evidenced by the Outer Loop’s average deal size reaching nearly 5,000 square feet. Pricing also remained resilient, with average sale values ranging from $1.2M to $1.5M, supported by improved investor sentiment and a stable lending environment. While the market is not yet in full recovery, the early effects of the Fed’s policy shift are generating renewed momentum in Houston’s retail sector, particularly for well-located, necessity-based assets. Houston Retail Transaction Velocity Q2 2025 Activity: In Q2, 52 trackable retail properties sold, marking a surge of over 70% in deal volume compared to Q1 2024 Q1 2024 Benchmark: Q1 2024 recorded 30 deals, serving as the baseline for the surge seen in Q2 2025. Sales Analysis Inner Loop | Within 610 | Single-Tenant Inner Loop | Within 610 | Multi-Tenant Inner Loop | Outside of 610 Inside of Beltway 8 | Single-Tenant Inner Loop | Outside of 610 Inside of Beltway 8 | Multi-Tenant Joshua Longoria Agent Insight “The second quarter marked the highest level of buyer activity seen in the past three years, with deals closing across a diverse mix of retail assets, from vacant restaurants to multi-tenant strip centers. Investors remain active, driven by strong fundamentals and long-term confidence in the Houston market. Looking ahead to Q3, we expect investor demand to remain steady; however, leasing momentum may remain muted as tenants take a cautious approach and new supply adds competitive pressure.” For exclusive listings and featured closings, download the full report today.

Josh Longoria

Senior Associate

8/11/25

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