Commercial Real Estate Market Report: Q2 2024

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Heading into what is likely to be a tumultuous election season, the economy continues to show its resiliency with GDP growing at a 2.8% rate in the second quarter according to recently released data from the Commerce Department. Commercial real estate continues to face a mixture of headwinds and tailwinds. The multifamily and industrial sectors are dealing with oversupply and absorption issues in some MSAs, while the markets generally continue to look forward to some level of interest rate relief to escape unfavorable debt terms.  

Financial nimbleness has largely avoided an overabundance of distress and markets are displaying numerous signs of having bottomed out. If we have reached a bottom, the second half of 2024 should see increased investment and transaction activity related to commercial real estate and recovering valuations.  

As always, improved markets will look different across asset classes and geographies but the overall trend for the remainder of the year looks to be positive.

Key takeaways

• Multifamily housing: Multifamily owners and operators are dealing with a more difficult environment than in the recent past, however the level of transaction and development activity in this sector relative to others is proof that investors remain convicted about the long-term fundamentals of multifamily housing. We believe some investors see this as a good time to buy low, banking on a good price relative to where asset valuations will be in the coming years as fundamental supply and demand dynamics will continue to be favorable.     
• Office: Office properties continue to struggle with rising vacancies and tepid demand, as many employers continue to embrace hybrid work schedules. Similar to the industrial sector, there is growing interest in adaptive reuse and redevelopment of existing office spaces to meet modern workplace needs, including mixed-use developments that integrate office, retail and residential components. 
• Retail: Strong fundamentals continued to provide tailwinds for the retail sector in the second quarter. Retail rents and occupancy are strong, powered by continued sales growth by retail tenants and high foot traffic as consumers continue to demonstrate an appetite for destination shopping, necessity retail, experiential venues and dining in particular. 
• Industrial: The industrial sector is showing negative absorption in the face of significant new supply and a greater level of investor interest and activity in the data center and cold storage sub-sectors. There also are geographical shifts occurring, with indications that this asset class is becoming less desirable in the West Coast/Los Angeles area and more desirable in the Southeast, specifically. 
• Capital markets: The stage is set for the Fed to deliver its much-anticipated rate cuts later this year as has been broadly anticipated. Policy makers appear to be in a position to pivot to maintaining stability versus fighting inflation and provide market participants confidence to execute their business plans with more confidence in the second half of 2024. This should lead to increased activity as the significant amounts of dry powder for both debt and equity investment find their way into the market.

For further analysis of the second quarter, download our latest report.

For more information on this topic, or to learn how Baker Tilly specialists can help with your real estate and infrastructure needs, contact our team.