As the curtain rises on 2024, the landscape of commercial real estate is poised for growth as slowly falling interest rates are expected to boost investment activity. A new report by CBRE foretells a year marked by both challenges and investment prospects across various sectors.
Capital markets
The forecast indicates that property pricing might hit its lowest point in the first half of the year, thereby potentially presenting lucrative buying opportunities. However, the anticipated decline in investment volumes—projected to decrease by 5%—reflects a cautious market sentiment. Moreover, the conservative stance of banks on lending throughout the year adds another layer of complexity to the investment landscape.
Office
With office vacancy rates expected to peak at 19.8% in 2024, an increase from 18.4% in Q3 2023, the sector still faces a formidable challenge. Leasing activity might see a revival but is anticipated to remain notably below pre-pandemic levels, based on the report. The slowdown in office construction, potentially leading to a scarcity of available Class A spaces in the latter part of the year, is another indicator of the sector’s dynamics.
Retail
A historical dearth of new retail construction is anticipated to contribute to a decline in availability rates. But despite this constraint, luxury retailers are eyeing expansion opportunities in markets like resort areas and underserved major metros like Dallas and Houston.
Industrial
The industrial and logistics sector is expected to maintain robust momentum in the coming year, mirroring 2023 levels of net absorption. That said, the pace of annual rent growth is forecasted to moderate, while initial rises in vacancy rates might be followed by a decline in the latter part of the year due to reduced new construction. The projected increase in U.S. industrial production over the next five years serves as a positive indicator for this segment’s demand.
Multifamily
Despite a significant wave of new supply—approximately 900,000 units under construction—the projected growth rate for rents remains below the historical average at 1.2%. Vacancy is expected to to surpass pre-pandemic levels, yet steady demand might uphold the average occupancy rate above 94%. Construction starts will decline in 2024 to 70% below the 2022 peak. Additionally, CBRE reported that multifamily continues to grapple with the ongoing debate between buying and renting, the former remaining notably more expensive.
Hotels
The projected economic slowdown could constrain the growth in Revenue per Available Room (RevPAR) to a modest 3% in 2024, but the performance across hotel categories is expected to be divergent, with urban and airport hotels predicted to fare better than resorts. As in previous slowdowns, upper-midscale hotels might benefit from travelers trading down from pricier options, based on the report.
Data centers
Continued demand outpacing supply might drive up pricing in the data center segment by 10 to 15% in 2024. Construction activity is in major markets will exceed 3,000 MW in 2024, compared to CBRE’s 2023 estimate of 2,500 MW. Markets like Austin, San Antonio, and Omaha are poised to attract significant growth due to factors like land availability, power infrastructure development, and tax incentives.
Read the full report at CBRE.com.