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**Q3 2025 GDP Growth Moderated by Shutdown Impacts, Labor Market, and Inflation Pressures**
The U.S. Gross Domestic Product (GDP) grew by a solid 4.3% in the third quarter of 2025, driven largely by increased consumer spending—particularly on nondurable goods and services—along with higher government expenditures and a boost in net exports. During the same period, personal income edged up by 0.4%. However, international trade in goods and services, as well as second-quarter international transactions, declined by $52.8 billion and $251.3 billion, respectively.
According to Marcus & Millichap’s “Gross Domestic Product” brief, these gains occurred before the federal government shutdown that took place from October 1 to November 12. The shutdown not only delayed the release of critical economic data but also curtailed Q3’s positive economic momentum heading into the final quarter of the year.
“Given the impact of the federal government shutdown and the slight drop in private domestic investment,” the brief cautioned, “Q3 GDP momentum is unlikely to carry into Q4.” Marcus & Millichap forecasts that GDP will grow by about 2% for the 2025 calendar year.
**Labor Market and Inflation Concerns**
Concerns loom in the labor market and inflation. Marcus & Millichap’s “Economic Update” noted that private sector payroll gains remained modest in both October and November, while government employment fell as previous layoffs became official with the expiry of severance periods.
Inflation showed some promising signs: November’s core Consumer Price Index (CPI) rose 2.6% year-over-year. However, data disruptions from the government shutdown may have understated true inflationary pressures. The report warns that a renewed uptick in inflation, combined with weaker hiring, could restrict household spending. Still, lower borrowing costs and fiscal support could provide some economic stabilization.
**Commercial Real Estate Outlook by Sector**
Here’s how the broader economic trends are influencing each of commercial real estate’s four primary sectors:
**Multifamily: A Mixed Bag**
High barriers to homeownership and limited housing supply are keeping many households in the rental market, leading to decreased vacancies. The reduction in new supply—2025 saw a three-year low in completions—has further supported occupancy.
However, the multifamily sector is becoming increasingly bifurcated. Class C properties, in particular, are now offering record-level incentives. Nearly 20% of these units had concessions as of November, far higher than in Class A or B properties.
**Retail: Possible Slowdown in Consumer Spending**
Retail vacancies remain historically low despite the net surrender of more than 13 million square feet of space earlier this year. Slower construction has helped absorb that space.
But the outlook is mixed. With consumer confidence dipping and U.S. trade policy uncertain, expansion plans may be shelved by retailers. While overall savings are up, disposable personal income stagnated in Q3, which could result in weaker retail and restaurant spending in the near term.
**Office: Building Momentum**
The office market is finding its footing. A decreased construction pipeline and stronger demand are boosting performance in the sector. High-end, amenity-rich Class A properties in major urban markets continue to see high occupancy. Additionally, there’s a growing trend toward smaller, modern suburban office spaces.
Looking ahead, the shrinking pipeline of new developments into 2026 may drive more tenants toward either top-tier modern spaces or rehabilitated older buildings.
**Industrial: Continued Supply Growth**
The industrial sector remains active, with project completions surpassing long-term averages for nine consecutive years. This high volume of new supply has led to a rise in national vacancy rates.
However, much of the new inventory—about half—has been delivered in just ten markets. As a result, around one-third of major metros still reported Q3 vacancy rates below the national average, indicating that demand continues to support industrial fundamentals in many regions.
**Conclusion**
While Q3 offered strong signals of recovery, lingering effects of the government shutdown, a cooling labor market, and inflation variability leave uncertainty on the horizon. How these economic signals translate into real estate decisions will vary by sector, but strategic caution is the common thread heading into 2026.
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