Consumers appear to be shifting their consumption focus toward essential goods, with prices on recreation services, hotel stays, airfare and used vehicles all growing more slowly. This trend is reflected in stabilizing prices and cooling inflation during March, according to a Marcus & Millichap analysis.
Escalating food costs are contributing to a pull on household spending to cover daily needs. The food index grew by 3% year-over-year, driven by increasing restaurant and grocery prices, the report said. Grocery-anchored and necessity-based retail stand to benefit from this evolving demand environment. Continued cost sensitivity also will likely reinforce the tenant mix toward value-oriented and discount retailers, it said.
Leasing momentum could be bolstered as prices ease across other segments, however, slower economic growth tied to elevated trade barriers may pose headwinds, particularly for low-income renters, said Marcus & Millichap. Owner's equivalent rent increased by 0.4% during March while the annual rate held at 4.4%, its lowest level since early 2022.
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The report said demand for middle-tier units could be driven by renters seeking affordability and higher-income households delaying trading up. However, a thinning construction pipeline will also limit new options at the upper end of the market, which should cause occupancy in Class A properties to be stable.
In the retail segment, price increases for apparel and furniture accelerated in March, possibly due to supply-side repositioning and a modest pull-forward of demand ahead of anticipated trade disruptions, said Marcus & Millichap. Retailers may use the 90-day tariff suspension to front-load shipments, which could result in demand for warehouse and distribution space as inventory accumulates, especially near major ports and logistics hubs.
Prices on new vehicles edged up slightly in March but were mostly stable. Marcus & Millichap said this suggests inventory levels and pricing dynamics have yet to face significant disruption. Onshoring and reshoring strategies could gain traction, particularly in regions with established automotive infrastructure, but many manufacturers are expected to adopt a wait-and-see approach. The timing and scale of any shifts will depend heavily on future policy developments and expectations, said the report.
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Kristen Smithberg
Kristen Smithberg is a Colorado-based freelance writer who covers commercial real estate, insurance, benefits and retirement topics for BenefitsPRO and other industry publications.
