CompStat: The Flight to Quality Has a Price Tag

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• State of the Economy and Recession Risk:
• Prime Class A Is Driving Dallas Rent Growth
• Retail Footprint Sizes Shift Unevenly Across Food & Beverage and Apparel Tenants
• Clear Height Is Driving Industrial Rent Premiums

Economic Updates

Tariffs and Trade:

• March port activity softened across major U.S. gateways, with Los Angeles at approximately 753,000 TEUs and Long Beach at approximately 775,000, both below March 2025 levels and well below mid-2025 peaks, signaling continued normalization in import volumes;

Labor Market Conditions:

• March’s job openings data showed unemployment edging down to about 7.2 million while mixed sector hiring, particularly a drop in office-using jobs, signals a still-resilient but uneven labor market.
• In March, weekly initial jobless claims averaged just above 210,000, down from February and below approximately 223,000 a year earlier, remaining range-bound and indicating a steady labor market with subdued layoffs;

Consumer Sentiment and Inflation:

• Nonresidential construction input costs rose through early 2026, with the Producer Price Index reaching 172.6 in March, well above 163.0 a year earlier and signaling renewed, accelerating cost pressures that could weigh on margins and project feasibility in cost-sensitive developments;
• In March, PCE inflation rose to 3.5% year over year, up from 2.8% in February and 2.4% a year earlier, breaking above its recent ~2.5–3.0% range and indicating a renewed acceleration in inflation;
• Headline CPI rose to 3.3% year over year in March from 2.4% in February, while core CPI edged up to 2.6% and food inflation eased to 2.7%, indicating a headline-driven pickup in inflation with more modest underlying pressures;
• Consumer sentiment fell to 49.8 in April from 53.3 in March, breaking to a new cycle low and signaling a decisive deterioration in confidence amid weakening expectations and rising inflation concerns;

State of the Economy and Recession Risk:

Retail sales rose 0.8% in March to $227.7B, after a 0.4% February gain and a January decline, showing recent monthly gains.

Economic growth rebounded to 2.0% annualized in Q1 2026, following a sharp slowdown to 0.5% in Q4 2025 from 4.4% in Q3, reflecting a volatile growth profile and uneven underlying momentum;

As of early May 2026, the federal funds rate held steady at 3.64%, reflecting a post-cut pause after 2025 easing and signaling that the Federal Reserve is waiting for clearer inflation and growth signals before making further moves;

Prime Class A Is Driving Dallas Rent Growth

A recent Commercial Observer article highlights Dallas’ office momentum as being driven by strong population and job growth, an influx of financial services firms, and robust demand for trophy and Class AA space, with top-tier assets commanding significantly higher rents.

CompStak data supports this “flight-to-quality” narrative, but adds important nuance. Overall starting rents have risen steadily from $31.62/SF in 2019 to $52.06/SF in 2025, and excluding financial services (FIRE) tenants has just a small impact on that trajectory, with rents reaching a slightly lower average of $47.11/SF in 2025. However, once Prime Class A assets are also excluded, rents are materially lower at $37.05/SF in 2025 and remained relatively flat through 2024 (e.g., $30.57/SF in 2023 vs. $28.81/SF in 2024) before increasing from 2024 to 2025.

This is also reflected in annual trends: while overall rents increased 18% in 2024, the non-Prime Class A, non-FIRE segment declined 6% that year, before rebounding 29% in 2025. Together, this pattern suggests that while demand is broad-based, pricing momentum was focused in new construction, recently renovated or trophy Class A buildings and only more recently began to spread across other types of buildings.

Retail Footprint Sizes Shift Unevenly Across Food & Beverage and Apparel Tenants

A recent GlobeSt article points to the continued evolution of retail real estate toward smaller footprints and a stronger emphasis on prime locations, as retailers continue refining how and where they take space in a more efficiency-driven market. That shift is reflected in CompStak data on average transaction size for retail leases, broken out by tenant type, food and beverage versus clothing and apparel, and by geography, comparing CBD (central business district) locations with non-CBD markets nationwide. In food and beverage, CBD transaction sizes increased through 2022 before reversing sharply, with average deal sizes falling roughly 63% from their peak by 2025. This increase in food and beverage CBD transaction sizes was driven in part by transactions such as City Winery’s lease of 32,000 square feet at 57 11th Avenue in the New York City market. In clothing and apparel, notable activity includes transactions such as Ross Dress for Less’ lease of 55,308 square feet at 799 Market Street in San Francisco. Non-CBD locations show a similar trajectory, declining about 66% from peak levels over the same period, pointing to a broad-based contraction in average footprint after 2022 across both geographies. Clothing and apparel show a more uneven pattern. CBD deal sizes ultimately sit well below 2019 levels after a mid-cycle rebound in 2023, reflecting a net contraction despite temporary recovery. Non-CBD transactions move in the opposite direction over the full period, rising roughly 44% from 2019 levels and more than doubling from their 2023 trough, reflecting a shift in how space is being utilized outside core urban districts. 

Clear Height Is Driving Industrial Rent Premiums

A recent Bisnow article highlights how warehouse operators are accelerating investments in automation and robotics to improve throughput and offset rising labor costs, with newer facilities increasingly designed to accommodate high-density storage systems and advanced material handling. CompStak data across two key industrial markets shows that these evolving operational requirements are being reflected in pricing, particularly in Southern California, where the rent premium for ceiling height has more than doubled in recent years. Based on leases executed between 2023 and 2026, each additional foot of clear height commands roughly $0.21/SF in rent, up from about $0.08/SF between 2020 and 2022, indicating growing tenant demand for vertically efficient, automation-ready space. In New Jersey, the premium has also increased, but more modestly, rising from approximately $0.07/SF to $0.09/SF per foot over the same period. This more measured shift suggests that while vertical capacity is increasingly relevant, it appears to be more fully embedded in pricing in more mature, supply-constrained markets. Notably, average rents do not increase consistently across ceiling height buckets, reflecting the concentration of high-clear space in large-format distribution facilities that typically transact at lower rents per square foot than smaller buildings. Controlling for lease size, location, and building age, however, higher ceiling heights are associated with a clear rent premium. Together, these trends reinforce the article’s core theme: as automation becomes more central to warehouse operations, building functionality, particularly ceiling height, is emerging as a key differentiator.