Moody’s latest Red-Yellow-Green report on U.S commercial mortgage-backed securities (CMBS) is cautiously optimistic about real estate’s near-term future. Multifamily housing holds the strongest position, with community shopping centers not far behind, according to the report. Office and industrial facilities are showing slight improvement, and the hotel sector is "inching forward."

"Although commercial real estate typically lags the business cycle, the signals point to continued stability or the early signs of recovery from the down part of the real estate cycle," says Moody’s analyst Sally Gordon, who authored the report.

Multifamily is likely to benefit from fewer people buying single-family homes as interest rates are expected to rise. Supply is expected to slightly outpace demand, however, while vacancy has risen some year-over-year.

High — but stable — vacancy rates continue to plague the office market, according to the report. On the industrial side, absorption is expected to be positive this year, although shallow, according to the report. One big plus for industrial is that vacancy declines have slowed considerably.

Rounding out the sectors, the hotel industry is showing "some life." "The boost to some hotels comes from consumer travel, which seems to be gravitating to secondary and tertiary destinations rather than major gateway cities for a host of reasons: fear of flying, a preference for drive-to destinations and more modest leisure travel," says Gordon.

The top five commercial real estate markets in the nation, based on Moody’s combined scores, are New York and Long Island, N.Y.; Norfolk, Va., Northern New Jersey and Riverside, Calif. The worst five markets in the nation are Denver, Austin, Texas, Baltimore, Md., Stamford, Conn., and St. Louis.

"Overall the well being of commercial real estate markets depends on the relationship between supply and demand," says Gordon. "In this cycle the demand side has primarily challenged market well being, since the sector has not been plagued by over supply."