2024 CRE Predictions
It is widely acknowledged that 2023 posed significant challenges for the commercial real estate sector. The persistent increase in Fed rate hikes, bank failures, and a notable deceleration in leasing activity have given rise to apprehension about the trajectory of CRE as the new year approaches. Whether you are an experienced investor, a business owner seeking a new space, or just interested in market trends, the following article will explore 2024 CRE predictions.
The Mortgage Bankers Association’s Updated Outlook on Commercial Real Estate
The Mortgage Bankers Association (MBA) has revised its CRE production forecasts, reducing expectations for 2024 due to a continued increase in delinquencies. The 2024 forecast, released on October 19, marked the MBA’s first significant adjustment for total and multifamily loan originations.
Delinquency rates have risen for four consecutive quarters, with the 30-day-plus delinquency rate reaching 5.1% for office property loans and 5.0% for retail loans as of September 30. Jamie Woodwell, head of CRE research at the MBA, attributes the uptick in delinquencies to uncertainties in property fundamentals, lack of transparency in current property values, and elevated and volatile interest rates.
The latest data from the National Credit Union Administration (NCUA) indicates a similar trend among credit unions, with rising delinquency rates for CRE loans. For 2024, the MBA predicts a 27% increase in total lending to $559 billion, with multifamily loans expected to rise by 19% to $339 billion and other loans projected to increase by 40% to $220 billion. Woodwell notes that challenges in the CRE market, including interest rate fluctuations and a low number of transactions, will likely persist, exerting downward pressure on borrowing and lending volumes in the coming quarters.
Importance of Issues for CRE in 2024
The Urban Land Institute and PWC conducted their “Emerging Trends in Real Estate 2024” survey, addressing these challenges and more. The results further emphasize the ongoing trends throughout the industry, especially interest rates and cost of capital. The Fed’s decision to pause rate hikes or institute another hike will be one of the determining factors for how CRE will perform in 2024.
Office + Hybrid Work | What’s the Outlook?
This year, hybrid work models have become more permanent, significantly affecting the overall outlook for the office sector. One of the most prominent impacts of this hybrid work trend has been on office investors, who have seen sales transactions decline more than twice as much as other main property kinds. Office demand continues to decline and will most likely continue this downfall in 2024.
Retail Takes Center Stage
Despite challenges in the retail industry, such as concerns about crime, certain retail bankruptcies, and downtown retail being affected by a decrease in office workers, there has been a significant rise in demand from retail tenants. Class A and trophy malls are experiencing high occupancy rates, luxury retail is seeing increased demand, and the prevalence of hybrid working has led to more people spending time at home and visiting strip centers, power centers, and grocery-anchored shopping centers more frequently.
Sunbelt Markets are the Ones to Watch
The Sunbelt remains an attractive destination for residents, businesses, and investors due to lower regulations and taxes, improved quality of life, and a growing workforce. This trend has persisted for years and is expected to continue throughout 2024. The Urban Land Institute and PWC’s Emerging Trends in Real Estate 2024 report revealed that out of the top 20 markets with “overall prospects,” 15 are situated in the Sunbelt region. These include Nashville, Phoenix, Dallas-Fort Worth, Atlanta, Austin, San Diego, Boston, San Antonio, Texas, Raleigh-Durham, N.C., Seattle, Houston, Denver, Charlotte, N.C., Miami, Northern New Jersey, Washington, D.C./Northern Virginia, Los Angeles, Tampa/St. Petersburg, Fla., Orlando, Fla., and Las Vegas.
