The US real estate market in 2024 will present a complex situation. Despite facing headwinds such as high interest rates, geopolitical conflicts, and near-recession in major global economies, the United States is poised to avoid recession. According to the recent CBRE U.S. Real Estate Market Outlook 2024, this resilience is largely attributable to the strength of U.S. consumers, particularly in areas such as health, leisure, and hospitality, which are driving economic vitality and employment. is expected to drive an increase. It was published this week.
Economic overview
Inflation is expected to start at around 4% in early 2024 and decline steadily, reaching around 2.7% by the end of the year. This decline will be driven by factors such as weaker commodity prices, improved supply chains and sustainable wage growth. However, challenges such as geopolitical conflicts and possible oil production cuts pose risks to inflation.
US Consumer Price Index (YoY)
Federal Reserve System and Interest Rates
The Fed is expected to gradually lower interest rates, targeting about 4.25% by the end of 2024 and 3.5% in 2025. This cautious approach reflects the resilience of the U.S. economy and declining inflation. Nevertheless, the federal deficit and high 10-year Treasury yields are expected to persist, potentially impacting the pace of economic recovery.
capital market
In the area of capital markets, commercial real estate investment is expected to gain momentum in the second half of 2024. However, the sector will continue to face challenges due to an uncertain macroeconomic environment and rising interest rates. While the office real estate sector, particularly non-Class A assets, will have difficulty raising funds, multifamily, industrial, and grocery-focused retail assets will continue to have strong prospects, depending on asset quality and lender-borrower relationships. Financing is possible.
Historical and projected cap rates
real estate segment
- office/occupant: Demand for prime office space remains strong due to changes in quality and amenities. However, overall office vacancy rates are expected to peak as hybrid working arrangements become the norm and below-average leasing activity.
- retail: Retail industry fundamentals are expected to remain strong, with retail vacancy rates declining and rent growth declining, but recovering by the end of the year. Demand is expected to increase in suburban outdoor retail centers.
- industry and logistics: The industrial market is expected to stabilize, with net absorption and rent growth moderating. The focus will shift to strengthening supply chains and energy efficient operations.
- housing complex: The multifamily sector may face temporary oversupply, which could result in slower rent increases and improved affordability for renters. However, demand is expected to remain strong, especially in markets with strong employment growth.
- Hotel: The hotel industry will face a variety of challenges to RevPAR growth, including a slowing economy and competition from alternative lodging options. However, the occupancy rate may rise due to the possibility of an influx of tourists from overseas.
- data center: The data center industry is evolving with a focus on integrating advanced technology and sustainable operations. Demand will continue to exceed supply, leading to higher prices.
The CBRE report concluded that the U.S. real estate market in 2024 will follow a path marked by both challenges and opportunities. Certain sectors, such as office real estate, may face headwinds, while others, such as multifamily and industrial real estate, are poised for growth.
Construction starts and forecasts for apartment complexes
All data and graphs provided by CBRE.