CbakertillyQ3 2022CommercialRealEstateMarketReport INSIDETHISREPORT03Introduction04General economtc overview08Section 1:Multifamily12Section2:Office17Section 3: Retail21Section 4: Industrial25Section 5:Capital markets28Abouttheauthors29About Baker Tilly INTRODUCTIONDear Reader,Summer is in the rearview mirror, winter is coming, andwith three-quarters of the year complete, 2022 has beenBRENT W. MAIERcharacterized by the waning of the pandemic and thewaxing of more familar threats in the form of inflation andNational Real Estate Valuationa potential recession. Although the country has dealt with& Advisory Leaderinflation before, the current environment is jarring in thatBaker Tilly US, LLPwe have not dealt with inflation at this level since the early1980s.The phrase "the new normal" has been overused in the wake of the COVID-19pandemic; however, it is hard to ignore that some systemic changes have occurredin multiple core real estate sectors. Industrial has seen unprecedented demandgrowth outstripping supply and driving increased rents and valuations, changinghow investors and end users of industrial property evaluate the sector. Officedemand on the other hand is likely to remain below pre-COViD levels permanentlyCombined with a decided flight-to-quality*in the sector, a significant amountof aging and mid-quality office products will ultimately need to be adapted orrepurposed.As we anticipated, if inflation persisted, commercial real estate transactionactivity delivered on the promise of decreased activitythat we observedlastquarter with transactions falling significantly across asset classes. Challengingdebt and equity markets contributed to some contemplated deals not beingconsummated while also contributing to a bid-ask spread between buyers andsellers. Buyers are looking for some sort of discount due to higher financing costs,and sellers are largely entrenched in thelr valuations and unwlling to move glventhat property-level fundamentals generally rematn strong.These strong fundamentals, particularly in the industrial and multifamily sectors,will provide some buoyancy to transaction activity as well-funded investorswill still pursue yield. We have also noted a significant uptick in hospitalityactvity with investors finally looking comfortable enough to jump on the manyconsumer discretionary spending are a threat to retail properties, but for now theconsumer spending.Best wishes for a fruitful fourth quarter. We hope you find this report insightful anduseful as you head into the end of the year.Thank you for reading.Visitbakertilly.comforadditional insights. GeneraleconomicoverviewUnemploymentstableWith another quarter of solid employment levels,the trailing 12 months are now all at or nearfull employment with the unemployment rateUnemployment ratehovering between 3.3% to 4.4% for the entireE.00%period and ending the most recent quarter at thelow mark of 3.3%.7.0G%The numberof unemployed seeking employmentc.06%ended the quarter at 4.467 milion, just slightly2.0c%above the lowest mark for the year in the springIn its Oct. 7 employment situation summary4.00%Dress release, the Untted States Bureau of LaborStatistics (BLS)reportedthat notablejob gainsUnemployment rateoccurred in the lelsure, hospitality and healthcareindustrles with the profess1onal serv1ces and2.06%business services sector also growing.TheOot. Neu. Des. Jen. Feb. March Api1l May JJns July Aug. Eept.report said the labor force participation rate wasSource: U.S, Bureau of Labor Stattsttos62.3%.RegionalemploymenttrendsunchangedState unemployment rate, August 2022, seasonally adjustedAKHIDO4.5% orabovc3.9% to4.4%3.2% to 3.8%2.6% to 3.1%2.5% and belowSeurce.us.Buresuof LaborStatisties As has been the case for some time, employment rates remain highest in the upper Midwest, withemployment also strong in the southern Sun Belt states, which have also experienced significantpositive migration since the COVID-19 pandemic.Headline inflation was down in the quarter with energy price surges abating. However, core inflationincreases were generally greater than theprior quarter. Notable increases were seenin the transportation services sector in the12-month increase greater than 10%quarter, likely representing cost hikes relatedVat=rvcr:cle insurarceJE, auIto rising energy costs being passed through toconsumers.Votar vcftele /maintanatce -5 (epalrransporatiar servin8Nslural gas (piped)Accordingto data from the BLS all items, lessLlgctricityfood and energy, rose 6.6% year over year as ofG:soltne (all t/pes)the end of September, an increase of 70 basisFJal ol1188points for the same category at the end of June.Overall CPI nflation for the 12 months endingOthgr foed at hurNcnelcoheltc cevcrsges anc.Sept. 30, 2022, was 8.2%, down from over g%Dairy and rclatad productssgcbo,t cuc snJlast quarter primarily due to drops in energy.Many segments again increased greater thanCerealk and bake10% for the trailing 12 months ending Sept. 30,Iad at hmng0d2022, as can be see