March 2024 Commercial Real Estate Market Insights
National Association of Realtors reports:
During the second month of the year, the Commercial Real Estate (CRE) market presented a mixed picture, with certain sectors showing resilience while others continued to face uncertainties and losses. The office sector has unquestionably borne the brunt of the most severe and persistent challenges than any other CRE category, and its outlook remains uncertain. The industrial sector has slowed down, with demand falling beneath levels seen before the pandemic. However, multifamily and neighborhood retail sectors remain strong. In the meantime, lower interest rates later this year are expected to create a more favorable environment for the CRE market by reducing costs, increasing demand, and stimulating economic activity.
Multifamily Properties
The multifamily sector is progressively rebounding from the lows it experienced last year. Net absorption has surged 120% compared to a year earlier. Persistently elevated mortgage rates, hovering around 7%, continue to boost the demand for apartment buildings. But, despite stronger demand, the vacancy rate increased further in February to 7.7%. The influx of new housing supply to the market has absorbed the stronger demand, preventing vacancy rates from falling.
Industrial & Warehouse Properties
In the industrial sector, there are emerging signs of a slowdown, with net absorption falling to levels lower than any seen in the past decade. While online shopping and e-commerce pushed up the activity to record high levels at the end of 2021 and beginning of 2022, net absorption is currently nearly 70% lower than a year ago and 35% below the pre-pandemic level. Nevertheless, rent growth continues to be the fastest among any other sector of the commercial real estate market. Specifically, rents for industrial spaces are 5.5% higher than a year ago. The long-term outlook for the industrial real estate market remains positive, driven by factors such as the lasting impact of e-commerce and robust construction spending…