The first quarter of this year marks a new chapter for commercial real estate: one of recalibration. While some sectors are starting to stabilize, others are still working through the ripple effects of an overheated cycle and tighter economic conditions. 

As someone who works closely with property owners, developers, and tenants across the Inland Northwest, including in the Spokane market, I’ve seen how quickly commercial real estate conditions can shift. Based on data from CoStar, Crexi, Spokane County records, broker-reported transactions, and recent transaction activity, investor confidence is there, but it’s more cautious and focused on specific property types. 

While no source captures 100% of market activity, due to reporting lag and data variations, the insights presented reflect general trends using the most reliable information currently accessible.

Industrial

After a decade of strong performance, Spokane's industrial market is entering a more balanced phase. Vacancy rose to 6.4% in Q1, a notable jump from under 3% just last year. Rent growth also slowed to 0.3% year-over-year, well below the five-year average of 3.2%. While 799,000 square feet were delivered over the past 12 months, only 217,000 square feet are currently under construction, and all of that space is 100% pre-leased. 

Rather than signaling tenant demand alone, this trend also reflects growing hesitancy from developers, who are holding back on speculative construction amid rising vacancy and tighter financing conditions. New development is increasingly concentrated in well-located, low-risk projects with committed users in place.

Industrial property sales in Q1 reached $29.7 million, putting the sector ahead of pace compared to last year’s performance. Investors may be positioning for a recovery or taking advantage of current pricing dynamics.

Multifamily

The multifamily sector showed signs of stabilization in Q1. Vacancy dipped from 8.7% to 8.0%, with absorption closely tracking deliveries. Rent growth remained flat largely due to lease concessions and rent contractions in select properties.

New construction has slowed considerably, with only 855 units underway, down from a peak of over 3,000 in 2023. The first quarter sales volume came in at $21.1 million, which is on pace with last year’s levels, but far below a high of about $350 million in 2022. 

Office

Spokane’s office market continues to hold steadier than many national markets. Vacancy fell slightly in Q1, and there were no significant new deliveries. Rent growth remained steady at about 0.5%, but leasing momentum from late 2024 appears to be continuing.

One notable trend is elevated vacancy in Class A office properties, with rates above 17%. While this suggests softness in the top tier, it may also offer an opportunity for tenants to upgrade. Working with office users, I’ve seen renewed interest from companies seeking modern, amenity-rich spaces often with hybrid-friendly layouts and favorable lease terms.

First quarter office sales reached $16.1 million, driven largely by Spokane Public School's $12.2 million purchase of the Riverpoint One building, in January. Overall, the sector is ahead of pace with last year, even as capital remains selective. Liberty Lake and downtown Spokane continue to see the most leasing activity, reinforcing the trend toward well-located, updated assets.

Retail

Retail remains relatively steady. Vacancy sits below 5%, and asking rents have grown 2.4% year-over-year. Although new development is limited, one standout project is the 107,900-square-foot Home Depot store, currently under construction on the South Hill. The development signals not only selective confidence in big-box retail, but also a strategic move to secure a prime South Hill location with limited competition, despite broader headwinds in consumer spending.

Additional activity in Spokane Valley includes several mid-size retail developments that are also pre-leased.

Retail sales volume reached $22.9 million in Q1, which is slightly below typical annual pacing. This may reflect investor caution in light of broader retail spending trends, along with local headwinds.

Outlook

With signs of stabilization in the industrial and multifamily sectors along with increased demand for office space, Spokane’s commercial real estate market is entering a rebalancing phase. Slowed construction across all sectors is helping to reset supply and demand dynamics, especially as financing remains tight.

Looking ahead, the second half of 2025 could bring renewed activity, if job and population growth continues. Conversations I’m having in the field reflect cautious optimism. Business owners and investors are watching conditions closely, looking for signs of stabilization, and in some cases, making proactive moves.

For tenants and business owners considering their next step, early 2025 presents a window of opportunity. Whether it’s upgrading office space, negotiating flexible terms, or securing a location in a competitive corridor, timing and strategy are especially important in today’s market. A lease review can provide clarity and direction before making a move.

For building owners and buyers, this is also a key time to assess property performance and market positioning. With fewer speculative projects on the horizon and leasing velocity returning in targeted areas, well-located, high-quality assets are poised to outperform. Those willing to reinvest or reposition may find themselves ahead of the curve as fundamentals strengthen. A broker opinion of value can help owners better understand where their asset stands in today’s market and guide reinvestment or disposition decisions.

While sales volumes across all sectors remain below historical averages, it’s important to note that buyers are still active, especially those with available capital or strategic needs. The slowdown in transactional volume appears to be driven more by debt market challenges and underwriting constraints than by a lack of interest. For motivated sellers or well-positioned assets, deals are still getting done.

Eric Peterson is the president and designated broker of Activ8 Real Estate, a Liberty Lake-based commercial brokerage. Contact him at [email protected] or visit www.ACTIV8RE.com.