The U.S. real estate market in 2024 presents a complex landscape. Despite facing headwinds including high interest rates, geopolitical conflicts, and near recessions in key global economies, the United States is poised to avoid a recession. This resilience is largely attributed to the strength of the U.S. consumer, whose spending, particularly in sectors like health, leisure, and hospitality, is expected to drive economic vitality and job growth, according to a recent CBRE U.S. Real Estate Market Outlook 2024, which was published this week.
Economic Overview
The inflation rate, beginning at approximately 4 percent in early 2024, is projected to decline steadily, reaching around 2.7 percent by year-end. This decrease will be aided by factors such as muted commodity prices, supply chain improvements, and sustainable wage growth. However, challenges such as geopolitical conflicts and potential oil production cuts pose risks to inflation.
U.S. Consumer Price Index (Y-o-Y Change)
Federal Reserve and Interest Rates
The Federal Reserve is expected to lower interest rates gradually, targeting around 4.25 percent by the end of 2024 and 3.5 percent in 2025. This cautious approach reflects the resilience of the U.S. economy and the declining inflation rate. Nevertheless, the federal deficit and a likely sustained high 10-year Treasury yield could impact the pace of economic recovery.
Capital Markets
In the realm of capital markets, commercial real estate investment is anticipated to gain momentum in the latter half of 2024. However, the sector will continue to face challenges due to an uncertain macroeconomic environment and elevated interest rates. The office property sector, especially non-Class A assets, will experience financing difficulties, while multifamily, industrial, and grocery-anchored retail assets will remain financeable, contingent on asset quality and lender-borrower relationships.
Historical & Forecast Cap Rates
Real Estate Segments
- Office/Occupier: The demand for prime office space will remain robust, driven by a shift towards quality and amenities. However, the overall office vacancy rate is expected to peak, influenced by the normalization of hybrid work arrangements and below-average leasing activity.
- Retail: Retail fundamentals are projected to stay strong, with the retail availability rate dropping and asking rent growth experiencing a dip but recovering later in the year. Suburban open-air retail centers are expected to see increased demand.
- Industrial & Logistics: The industrial market is anticipated to stabilize, with net absorption and rent growth moderating. The focus will shift towards strengthening supply chains and energy-efficient operations.
- Multifamily: The multifamily sector may face a temporary oversupply, leading to moderated rent growth and improved renter affordability. However, demand is expected to remain solid, particularly in markets with strong job growth.
- Hotels: The hotel industry will confront various challenges to RevPAR growth, including economic slowdown and competition from alternative lodging. However, the potential influx of overseas visitors could bolster the occupancy rate.
- Data Centers: The data center industry is evolving with the integration of advanced technologies and a focus on sustainable operations. Demand will continue to outpace supply, leading to a rise in pricing.
The U.S. real estate market in 2024 is set to navigate a path marked by both challenges and opportunities, the CBRE report concluded. While certain sectors, like office real estate, might face headwinds, others, like multifamily and industrial properties, show promise for growth.
Historical & Forecast Multifamily Construction Starts
All data and graphs courtesy of CBRE.
