CBRE’s 2024 US Real Estate Outlook: While Property Values Will Fall Further, Vacancies Will Rise

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CBRE’s 2024 US Real Estate Outlook: While Property Values Will Fall Further, Vacancies Will Rise

Photo: CBRE

CBRE expects economic growth to slow in 2024, according to the company’s 2024 US Real Estate Outlook. However, a recession may be avoided and real estate transaction values ​​will continue to decline, creating attractive buying opportunities.

CBRE economists expect robust consumer spending next year to counter economic headwinds, including high interest rates and near recession in Europe and China. CBRE forecasts a slight increase in the US unemployment rate to 4.5% and a moderation in inflation, which will allow the Federal Reserve to increase short-term interest rates to around 4.25% by the end of 2024 and to 3.5% in 2025 reduce.

The expected economic downturn and the initial upswing will impact all areas of commercial real estate. CBRE expects lending to remain tight, property values ​​to continue to decline in the first half of the year before activity recovers in the second half, office vacancies to increase and a wave of multifamily construction projects to occur.

“There is still some more trouble ahead in the real estate sector, but stabilization and the early stages of recovery are not far behind,” said Richard Barkham, CBRE Global Chief Economist and Global Head of Research. “The investment volume will decline overall in 2024, but will see an upturn in the second half of the year. And rental activity will pick up somewhat in 2023 after a sluggish year.”

CBRE’s report details the company’s outlook across multiple sectors.

Capital markets:

CBRE expects real estate prices to bottom in the first half of the year. Capitalization rates – a measure of a property’s cash flow as a percentage of its value – will rise by 25 to 50 basis points (bps) in 2024, representing a further 5% to 15% loss in value.

Investment volumes will decline by 5% in 2024, stabilizing after the expected 45% decline this year. All-cash buyers such as sovereign wealth funds, pension funds and endowments are likely to be the quickest to capitalize on generational buying opportunities in the first half of the year.

Banks’ appetite for commercial real estate lending will remain subdued throughout the year.

Office and users:

U.S. office vacancy will peak at 19.8% in 2024, up from 18.4% in the third quarter of 2023 and 12.1% at the end of 2019. Office leasing activity will pick up slightly in 2024, but well below remain at pre-pandemic levels. Companies seeking office space smaller than 20,000 square feet will account for the majority of leasing activity. Office construction will slow to its lowest level since 2014, raising the prospect of a shortage of available Class A space later this year.

Retail trade:

A continued lack of new retail construction will contribute to retail availability falling 20 basis points to just under 4.6% in 2024. CBRE expects retail spending to weaken from 4.4% in 2023 to 2.6% in 2024 and that net absorption – new demand for retail space – will fall to 28 million square feet from 35 million square feet last year becomes. Luxury retailers will look to expand in U.S. resort markets and underserved major metropolitan areas such as Dallas and Houston.

Industry & Logistics:

This sector will be active in 2024, with net absorption at 2023 levels and annual rental growth moderating to an increase of 8% by the end of the year. Construction completions will account for half of the total in 2023. Vacancy will rise to around the five-year average of 5% by mid-2024 from 4.2% in the third quarter of 2023, but will decline in the second half of the year due to a significant decline in new construction. The projected 7.5% increase in US industrial production over the next five years bodes well for demand for manufacturing and distribution space in the US.

Apartment building:

A wave of new offerings – around 900,000 units are currently under construction – will shape this sector in 2024. Rents will rise by a below-average 1.2%. Vacancy will rise above pre-pandemic levels, but sufficient demand will keep average occupancy above 94%. Housing starts will decline in 2024 to 70% below the 2022 peak. Buying will continue to be more expensive than renting; The premium on the average monthly mortgage payment for a newly purchased home will continue to be 35% higher than the average monthly rent next year.

Hotels:

A weaker economy will dampen RevPAR (revenue per available room) growth to a 3% increase in 2024. City hotels will do well and airport hotels will benefit from increased travel, but resorts will see the slowest growth. As with previous slowdowns, upper-midscale hotels will benefit as travelers forego more expensive options.

Data Center:

Demand will continue to exceed supply, increasing prices (for 250 kW to 500 kW demand) by 10% to 15% in 2024, after an expected increase of 16% in 2023. Construction activity in key markets will in 2024 compared to CBRE 3,000 MW exceeding 2023 estimate of 2,500 MW. Markets such as Austin, San Antonio and Omaha will attract development and investment due to land availability, energy infrastructure development and tax incentives.

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