Hot and cold, up and down... the commercial real estate market is starting to sound like an early 2000’s pop song, with differing and even completely contradictory opinions and outlooks coming from all angles.
Like any news story with perspectives from both sides, I think the reality lies somewhere in the middle. There are both promising and concerning things happening in the market right now, and a lot of it varies by sector and market location. One opinion I do put a lot of stock in is that of the people actively involved in the market: the investors.
CBRE surveyed investors for their 2024 U.S. Investor Intentions Survey and found that investor sentiment has significantly improved, with 60% of respondents expecting to purchase more real estate in 2024 than in 2023, compared with only 16% in 2023 versus 2022. There’s a similar narrative for selling in 2024; 40% of respondents expect to sell more assets this year than in 2023, compared to only 14% in the survey from last year.
One other data point from the CBRE survey that I find to be very promising is the expectation of when investment activity will pick up. Only 9% of respondents expect it to increase in the first half of 2024, but by the second half of the year 54% anticipate a broader market recovery, and most of the remaining respondents expect to see it in the first half of 2025. So, despite the concerning interest rates and bid-ask gap, investors see a turnaround coming…and soon.
I’d be remiss to overlook the other side of the coin, which has the media and some experts in an uproar. There is still a massive chunk of CRE debt coming due before the end of 2025 (to the tune of approximately $1.5 trillion), and this puts a lot of stress on financial institutions. So far we’ve seen lenders working with borrowers to restructure loans in a way that benefits both parties, and I anticipate more of that in 2024.
Interest rates have been a buzzword for the last 12+ months and although it’s taking longer than we hoped for them to come down, all indications point to multiple rate cuts in the second half of the year. As these rates start to decrease, the gap between what sellers want to get and what buyers are willing to pay should begin to minimize.
Nationally, multifamily and industrial properties will be the most favored this year, but office and retail are starting to make a comeback as the workforce returns to the office and the economy gets healthier. In the Gulf South, we are seeing an uptick in demand from investors for multi-tenant office, retail, and industrial properties.
It is important to approach the coming year with cautious optimism. It’s not all doom and gloom -- in fact there’s a lot to be excited about on the horizon, but we also shouldn’t look at it through rose-colored lenses.
Justin Langlois, CCIM is a Commercial Real Estate Advisor with Stirling Investment Properties servicing Baton Rouge, Louisiana and surrounding markets. Please reach out to Justin to discuss your real estate investment strategies.