Trends in the US Commercial Real Estate Market

It’s not been plain sailing for professionals in the US commercial real estate market of late, with both global and domestic issues contributing to economic uncertainty and some degree of market instability. While the industry did enjoy a boom between 2020-2022, in which the commercial property price index rose from 177-212, some experts believe property prices may fall by up to 40% in the near future as businesses continue to adapt to the new normal.

With studies suggesting 22% of the American workforce could be working remotely by 2025, and interest rates continuing to rise, the future for many commercial real estate developers may seem a little bleak. However, just like any market, outlooks must be viewed as cyclical.

Accounting for predicted changes, data-backed forecasts and expert opinions, professionals will likely find a way to best navigate a potentially turbulent future. With this in mind, this post will explore a few key trends in the US commercial real estate market for 2024 and beyond.

While the traditional view of commercial real estate may be beginning to seem outdated, with many startups and small businesses choosing to explore alternative hybrid and remote work models, novel technological developments are breathing new life into commercial properties.  

The property technology industry has experienced significant growth over the last few years, with experts forecasting the PropTech market to be worth more than $32 billion by 2030. As more organizations look to harness the power of AI, cloud-based systems and smart building solutions to streamline the management of commercial spaces, innovation is to be expected.

To offset some of the issues associated with rising resource costs and changing commercial tenant requirements, automated management systems will likely become more widespread, while energy-efficient smart building features will help teams to reduce avoidable expenses.

While office vacancy rates may have reached an almost historic high of 19.2% during 2023, other sectors of the commercial real estate market have continued to perform reasonably well. In particular, industrial and multifamily residential properties seem to be retaining value.

Despite rent growth for multifamily properties slowing slightly during 2023, external factors like rising mortgage rates have led to an increased demand for such properties among US tenants, leading experts to suggest investment activity may well increase throughout 2024. 

To capture this market, existing commercial properties will likely need to be adapted to some extent, with multi-family residential video security and similar technological amenities used to revitalize properties.

As far as the industrial sector is concerned, existing properties have experienced the lowest vacancy rate of all sectors in recent years, with rent growth levels remaining high at over 10%. Considering the continued growth of related commercial sectors like e-commerce and manufacturing, investments into industrial commercial properties will likely remain attractive.

Though the commercial real estate market is expected to stabilize to some degree over the coming months and years, geopolitical issues and related global supply chain problems will likely continue to cause some market uncertainty. In an effort to best navigate these issues, developers, investors and property managers may well explore cash optimization initiatives.

By utilizing AI-informed financial, lease and generalized real estate portfolio management systems to optimize cash flows, investors can better position themselves to capitalize on market opportunities by ensuring funds remain readily available when asset prices drop.

Integrating data analytics systems into existing real estate management solutions will give proactive investors a competitive edge, meaning the adoption of these technologies will likely continue to increase throughout 2024 and beyond, especially as the market settles.

Finally, professionals involved in the commercial real estate industry will be pleased to learn that federal interest rates are expected to fall in the new year, meaning borrowing costs may begin to decrease. While exact plans have not yet been revealed, the rate of inflation in the US has been trending downwards consistently, leading some experts to believe that interest rates may be reduced as early as the first quarter of 2024.

This projecting easing of federal interest rates may enable real estate investors to readjust their operations with increased profitability in mind, with stakeholders no longer requiring such high yields to justify new investments. However, economic problems might still persist.

While the general consensus among economists seems to be that the US will be able to avoid a recession in the near future, some believe the risk of recession has only been delayed. Either way, investors should approach the market cautiously for the time being.