Commercial Real Estate Outlook 2024: The Kiplinger Letter (2024)

To help you understand what is going on in the commercial real estate sector and what we expect to happen in the future, our highly experienced Kiplinger Letter team will keep you abreast of the latest developments and forecasts (Get a free issue of The Kiplinger Letter or subscribe). You'll get all the latest news first by subscribing, but we will publish many (but not all) of the forecasts a few days afterward online. Here’s the latest…

Let’s check in on commercial real estate. This year, 2024, promises to be a mixed year. Sectors like office space are in for more pain, but the picture isn’t so dark elsewhere, and a few segments will thrive. The office market hasn’t seen the worst yet.

Office Space
Vacancy rates are set to go even higher, which is sobering, considering that the national rate just hit an all-time high of 19.6% in the fourth quarter. Look for vacancies to peak at nearly 21% later this year as demand for space stays subdued.

While more office workers are returning, many continue to work hybrid schedules, a couple of days in the office and a few days at home. So, employers need less space overall, even if their workforces are coming back to the office. Hybrid schedules mean fewer workstations are needed since workers rotate and share common spaces. And, in some metro areas, such as Boston, Houston, Miami, San Francisco and Washington, D.C., the fraction of the remote workforce isn’t falling much.

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So, 2024 will be the year of fire sales on offices. Deep-pocketed private equity funds hold $100 billion to snap up distressed office buildings in big metros like Los Angeles and New York. Meanwhile, office construction and rents figure to both remain stagnant.

Retail Space
Retail space is in for a better year than offices. The surprising resilience of the American consumer supported a big jump in retail construction last year. Building will slow this year, with most new space in suburban shopping centers. Aside from traditional malls, most retail space should hold up, with rents on the rise.

Industrial Space
The formerly hot industrial and logistics sector will cool but won’t freeze up. The burst of demand for warehouses and related space unleashed by the pandemic, when e-commerce surged, is leveling off now. Construction figures to slow notably, as the overall economy downshifts. But rent should still manage 2% growth in 2024.

Data Centers
Demand for data centers should stay hot, exceeding supply and lifting rents. In fact, the rise of artificial intelligence, high-frequency trading and other applications that use massive amounts of data will keep demand for data centers strong for years.

Construction will top 2023’s lofty level, prompting more conflicts with neighborhoods that resent the noise data centers make. Omaha, Nebraska, plus Austin and San Antonio, Texas, figure to be hot markets, given strong local demand and generous tax incentives.

It may be a so-so year for hotels as leisure travel softens and hotels face competition from cruise ships and short-term rentals like Airbnb. Urban hotels and airport hotels figure to do the best, with the latter boosted by business travel. Resorts will see another tough year.

Finally, look for residential space to struggle with slow rent growth. A wave of new apartments hitting the market lately won’t be enough to lower occupancy rates from their high levels but will keep rent increases to a tepid 1.2% average this year.

This forecast first appeared in The Kiplinger Letter, which has been running since 1923 and is a collection of concise weekly forecasts on business and economic trends, as well as what to expect from Washington, to help you understand what’s coming up to make the most of your investments and your money. Subscribe to The Kiplinger Letter.

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Commercial Real Estate Outlook 2024: The Kiplinger Letter (2024)


Commercial Real Estate Outlook 2024: The Kiplinger Letter? ›

In 2024, expect hybrid and work-from-home trends, tighter budgets, rising rents and the demand for data centers to continue.

What is the CRE outlook for 2024? ›

Overall, CRE maturities will rise to $929 billion in 2024, representing 20% of the $4.7 trillion in outstanding loans, with banks holding 47% of the maturing volume (Figure 2). The number of loans maturing this year has raised concerns about default risk and the potential for an increase in distressed assets.

What is the US commercial real estate market forecast? ›

There is an increased chance that the U.S. will avoid a recession and achieve a soft economic landing in 2024, but economic growth will slow and downside risks are elevated. Commercial real estate investment activity likely will begin to pick up in the second half of 2024.

Will 2024 be a better year to buy? ›

There probably won't be a single "best time" to buy in 2024, because that depends on each buyer's priorities — so it's important that you figure out yours. If getting the lowest rate possible is most important to you, you'll want to wait until later this year to buy, or possibly even wait until 2025.

Will there be a housing recession in 2024? ›

Though many Americans believe the housing market is at risk of crashing, the economists who study housing market conditions overwhelmingly do not expect a crash in 2024 or beyond.

How much commercial real estate debt is maturing in 2024? ›

Mortgage Bankers Association data shows that $929 billion of commercial real estate debt will need to be repaid or refinanced in 2024, the report said.

How are interest rates affecting commercial real estate? ›

Higher borrowing costs tend to dampen commercial property prices directly by making investments in the sector more expensive, but also indirectly by slowing economic activity and reducing the demand for such properties.

What is the hottest real estate market in the US right now? ›

Large Cities With the Hottest Real Estate Markets
Top CitiesScore*
1. San Jose, CA82.7
2. Oakland, CA73.2
3. San Diego, CA68.4
4. Virginia Beach, VA66.8
11 more rows
Feb 22, 2024

What could declining commercial real estate values mean for US banks? ›

The turmoil in the U.S. commercial real estate market is already negatively affecting banks that hold a large amount of debt of struggling property developers. With the surge in interest rates, many property developers are struggling to refinance their debts, forcing some banks to boost their reserves for loan losses.

What is the outlook for commercial real estate in Texas? ›

2024: Projections and Trends

Looking ahead to 2024, the Texas commercial real estate market stands poised for consistent growth across office, retail, and industrial properties. The multifamily sector retains allure due to evolving housing preferences.

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