Moody’s Ratings released its CRE traffic light analysis — Red-Yellow-Green — for the third quarter of 2024. The overall score was Yellow 62, unchanged from the previous quarter.
The data comes from CBRE Econometric Advisors, sometimes with additional data, and each property gets a score on a 0-to-100 scale. Scores of 0-33 are Red (already under stress, “tenants’ markets”), 34-66 are Yellow (on the cusp of imbalance), and 67-100 are Green (demand outpaces growth in supply; “landlords’ markets”).
Retail over the last five quarters has been at its highest level — Green 86 — since Moody’s started keeping the data series. The vacancy rate has been steady since the second quarter of 2024. Scores were up in 20 markets, down in 33 markets, and unchanged in 16. Upcoming supply growth was 0.3%. The demand forecast was 0.5% and the supply-demand relationship at 0.2%.
In the third quarter, multifamily had a slight increase of two points to Green 80. The reason, according to Moody’s, is strong demand and a decline in a vacancy rate that had increased for most of the last two years. If correct, it suggests that given the concern about heavy production of new units increasing vacancy and dragging down rent growth rates as GlobeSt.com reports have noted may have been even more localized than previously realized. Scores improved in 49 markets, worsened in 12, and were unchanged in eight. A slight decrease in demand forecast from 3% to 2.9% between Q2 and Q3 offset a decrease in upcoming supply. Vacancy rates dropped from 5.5% to 5.3% in the two quarters. Year-over-year, vacancy rates were better in 25 markets, worse in 39, and unchanged in 5.
The score for industrial was also up two points between Q2 and Q3 to Yellow 62. The category had been high-flying from 2021 into 2022, as the country reopened, sending a lot of purchase traffic back to in-person shopping. This was the case until inflation and interest rates spiked. Scores were up in 36 markets, down in 21, and unchanged in seven. Upcoming supply shifted down from 1.5% in Q2 to 1.4% in Q3. The demand forecast went from 1.2% to 1.% The supply-demand relationship went from -0.5% to -0.4%. Vacancies reached 8.3% in Q3 from 8.2% in Q2. The same period in 2023, it was 6.5%. Year-over-year vacancy rates improved in four markets, were unchanged in two, and deteriorated in 69.
CBD office was up five points to Yellow 45 while suburban office rose five points but to Yellow 42. For CBD, scores were up in 38 markets, down in 16, and the same in four. Upcoming supply growth dropped by 20 basis points to 0.4%; forecast demand was up 60 basis points to 1%, improving the supply-demand ratio from -0.1% to 0.6%. Vacancy rates stayed at 19.6% but were higher from the 18.6% the year before. Year-over-year vacancy was better in 29 markets, down in 28, and the same in one.
Suburban scores improved in 42 markets, deteriorated in 14, and remained unchanged in seven. Upcoming supply dropped from 0.6% to 0.4%. Forecast demand went from -0.5% to 0%, bringing the supply-demand ratio from -1.1% to -0.4%. Vacancy rates edged down 10 basis points to 18.7%; the previous year’s rate was 18.3%. Year-over-year vacancy was better in 26 markets, worse in 35, and unchanged in two.
Meanwhile, the score for the volatile hotel sector was the only one to drop, losing nine points. The change was the result of declines in several Sunbelt markets and a contraction of revenue per available room. Other factors may also have been international leisure travelers staying in Europe for the Olympics and such macroeconomic specifics as the U.S. dollar’s relative strength, Federal Reserve monetary policy, and U.S. elections.