The top three CRE markets are all located in the Southeast, driven by strong short-term economic momentum and total returns of almost 100 basis points or higher than the national average, according to SitusAMC’s top three bottom three metro ranking for the first quarter. Meanwhile, all three bottom markets were in California and had total returns at least 75 bps below the national average, according to the report.
Nashville remained the top metro on the Situs AMC ranking for the second straight quarter, bolstered by a strong industrial performance of 5.3%. Industrial comprises 47% of Nashville’s total CRE market. While industrial occupancy was down in the city year-over-year, it remains 690 bps above pre-pandemic levels and is expected to increase 130 bps by 2029. Retail also performed well in Nashville at 4%, although the segment only accounts for 3% of the total market. The market recorded total NPI Classic CRE returns of 3%, the best among major markets and the highest for Nashville since Q2 2022.
In second place was Houston, with an NPI Classic return of 2.8%, the best performance in three years for the metro. Apartment was the top-performing segment, at 3.7%. The sector accounts for 27% of Houston’s total CRE market. Though occupancy has weakened following years of strong supply, effective rent growth is up 2.6% year-over-year, 100 bps ahead of the U.S. pace. Industrial, which makes up 24% of Houston’s CRE market, also posted solid returns.
Orlando ranked third on SitusAMC’s list of top markets, with a 2.2% total return, according to NCREIF. Strong retail performance of 4.2% boosted the city, with the segment accounting for 23% of its total CRE market. The apartment segment also dominates in Orlando, accounting for half of the CRE market value there. But multifamily performance was a more muted 1.2%, according to the report.
Meanwhile, San Bernardino and Riverside ranked at the bottom of the list, posting the only negative return among all markets. In fact, the metro has posted 10 consecutive quarters of negative returns, most recently at -0.2%, but has been steadily improving. Industrial accounts for 88% of the total CRE market and the segment’s -0.3% return was the second weakest among the metros in the firm’s analysis. Its strongest segment was apartments, though it accounts for just 7% of the total CRE market.
The second-worst market in the ranking was San Francisco, which has been among the bottom three markets for the past two years, although the region's total returns turned positive for the first time since the second quarter of 2022. Office makes up 64% of San Francisco’s CRE market and at -0.1% was the third-worst performing office market in the analysis. San Francisco office occupancies were down 290 bps year-over-year, 1,400 bps below their pre-pandemic level.
Finally, Los Angeles was the third-worst market on the list with a weak CRE performance of 0.5% returns. However, this was the first positive total since Q3 2022. Industrial makes up about 45% of the market’s CRE performance and its -0.4% return dragged overall performance in the market. Office, which makes up 21% of the market, posted a return of 1.7%, buoying the metro’s total returns.
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