This blog post was last updated on April 17, 2024 with new information about the latest commercial real estate trends.
Evolving conditions have forced investment managers to keep a close eye on global, regional and local trends. Falling valuations, high costs of capital and global volatility have left a lasting impact on the commercial real estate market. Even in the face of gale-force headwinds, data-forward investors have surfaced pockets of opportunity in burgeoning markets and sectors.
While many investors have kept their pencils down, others are taking now as an opportunity to amass market intelligence ahead of a turn in the market. Firms equipped with centralized, data-driven insights about lucrative sectors are positioned to identify commercial real estate trends and win as opportunities emerge.
Lenders have prepared to become increasingly active as players across the market anticipate a wave of maturities driving new loan demand, offering private credit investors a spotlight once held by banks.
Sectors like multifamily and industrial continue to drive strong performance relative to others, even as sector commercial real estate trends temper growth. Retail, which previously endured an eCommerce-induced slump, has rallied. Beset with declining demand, office continues to face new tailwinds.
Read on to learn more about trends across commercial real estate trends finance, lending, various market sectors and technology.
Jump to:
- Commercial Real Estate Financial Trends
- Commercial Real Estate Lending & Debt Market Trends in 2024
- Commercial Real Estate Market & Asset Class Trends
- Commercial Real Estate Technology (Proptech) Trends
Commercial Real Estate Financial Trends
1. Annual Commercial Real Estate Investment Volume Decreased by 47% YOY in Q4
Global volatility, the high cost of capital, banking turmoil and broader macroeconomic headwinds continue to hamper CRE investment activity, marking one of the most prominent commercial real estate trends. According to CBRE, annual CRE investment volume in the US fell by 47% to $647B in Q4.
From Q3 to Q4, global investment volume fell by 37% to $157B. On an annual basis, investment volume fell by 50% in the Americas, 46% in Europe, and 29% in the Asia-Pacific region.
While some sectors experienced higher transaction volume than others, volume declined across all sectors. Despite a 60% YoY decrease in volume in the US, multifamily remained the strongest sector due to resilient fundamentals and the perpetual demand for housing, totaling $122B annually. Industrial investment volume fell by 40%, totaling $100B annually, remaining an attractive sector overall. Office investment volume totaled $55B annually and declined by 56% YoY, just below retail, which fell by 37% to $61B.
As fundamentals continue to stabilize and macroeconomic conditions improve, experts expect investment activity across the market to accelerate.
2. Commercial Prices Have Declined by 7% Year-over-Year as of April
According to Green Street’s Commercial Property Price Index, prices declined by 7% over the past year. Since the market’s pricing peak in March of 2022, prices have dropped by 22%. Peter Rothemund, Co-Head of Strategic Research at Green Street, believes investors may see little-to-no-change in the near future.
The RCA Commercial Property Price Index tells a similar story, while highlighting some areas of opportunity for investors, showing a 4% YoY price decline across the market as of February. Office prices plummeted by 15.2% YoY, including a 30% decline for CBD offices. While not significant enough to outweigh broader trends across the market, industrial prices grew by 1.9% annually. Nationwide, prices in major metros declined more than those in non-major metros, validating the importance of proprietary data in unlocking localized commercial real estate trends.
Measuring sales comps from July to December, the CBRE Cap Rate Survey H2 2023 showed an increase from 6.4% to 7% over this six month period, with expansion across multiple property types. According to this study, neighborhood retail pricing remained the most stable. Most of the 250 professionals believed that cap rates had peaked.
3. The Flight to Quality Continues
Activity in the office market has slowed significantly due to hybrid working, lifestyle factors and broader macroeconomic trends. However, the flight to quality–in which investors vie for high-quality assets, often leaving deals for lower-quality assets on the table–persists.
Top asking rents in gateway markets were 51.5% higher than the rest of the office market, according to a Cushman & Wakefield study. What complicates this real estate trend, however, is that Class A assets comprise only 10-15% of the total market inventory. In these high-quality buildings, direct vacancy is below 11%, an impressive benchmark compared to the broader market.
Elsewhere in the market, some investors report that the flight to quality real estate trend has diminished. Despite frequent reports of a flight to quality, some investors have claimed this trend is receding, with 2023 losses concentrated in higher-quality buildings. Less than 43% of Class A buildings sold for the listed purchase price, while this was true for only 19% Class B and 13% Class C properties.
4. Rental Growth Across Major Property Sectors
Despite a challenging pricing market, many of the major property sectors saw rental growth, according to the latest NAR report.
Multifamily rents increased by 0.7%, even while vacancy rates reached a 10-year high of 7.7%. Consistently high mortgage rates drove apartment demand, yielding net absorption of 120%. Absorption share grew for Class B properties, while it declined for Class A.
Industrial saw the strongest growth at 5.5%, proving its resilience even as pandemic-era consumer trends that drove eCommerce growth fade. Industrial did, however, see a slowdown in absorption rate.
Retail growth was 3.2% due to tight market conditions and limited supply. Nonetheless, a low 4.1% vacancy rate highlighted the sector’s resilience.
Unsurprisingly, office had the highest vacancy rate and lowest rent growth at 0.7%.
5. Some Investors Pick Their Pencils Back Up, While Other Investor Pencils Remain Down
As market dynamics evolved in 2022 due to high capital costs and inflation, many investors shifted to “pencils down” mode to weather the storm. Some firms continue to simply amass market intelligence in preparation for emerging opportunities, while others have already started to act.
Experts anticipate eventual rate cuts, fostering a prevailing sense of optimism that market activity will accelerate in H2 2024. While rate cut timing is uncertain, there are signals that the Federal Reserve will not implement further hikes.
6. CRE Valuations Dropped an Average of 42%
An analysis of 556 reappraised properties by CRED iQ highlighted that CRE valuations dropped by, on average, 42%. Valuations across the office sector declined by 50%, followed by retail at 49%, multifamily at 35% and industrial at 30%.
Of the 556 reappraised properties included in the analysis, the top 25 were either delinquent, transferred to special servicing, or both.
7. Investors Endured a Tight Fundraising Environment
According to McKinsey, managers across capital markets faced one of the toughest fundraising environments ever; real estate was no exception. Global closed-end fundraising declined 34% to $125B. However, the largest CRE fund ever closed at $30B, marking a noteworthy outlier to this commercial real estate trend.
The report also noted that the trend toward economies of scale persisted. Investors continue to allocate their capital toward platforms spanning multiple sectors managed by large institutions. 37% of aggregate closed-end real estate fundraising was attributed to the top five managers.
8. Commercial Real Estate Investors Prioritize ESG Criteria
ESG has transitioned from a commercial real estate trend to critical investment criteria for investment evaluations.
ESG, or environmental, social and governance-related considerations, have come to the forefront. A PGIM trends report from 2022 highlighted that over two thirds of investment managers have adopted ESG standards in their investment criteria, with a particular emphasis on environmental factors. New data, however, suggests a strong correlation between ESG and growth.
Cynthia Adams, co-founder and CEO of Pearl Certification, which provides investment data on home performance features, recently cited a study that revealed companies making ESG claims grew by 28% YoY, compared to 20% for those that did not. And, reporting on ESG considerations may soon become a requirement, according to NAR. The US Securities and Exchange Commission recently proposed a rule requiring publicly traded investors to report on climate risks, emissions, and net-zero transition plans.
OSCRE is a corporate member organization committed to standardizing real estate data, one of its goals being the fulfillment of ESG standards.
9. Investors Audit and Strategize Around Lender Exposure Amid Banking Turmoil
The woes of 2023’s worrisome banking turmoil appear to have passed, but CRE investors have learned their lessons–most importantly, to maintain real-time visibility into exposure.
Firms that were exposed to institutions like First Republic Bank, Silicon Valley Bank and Signature Bank wanted to act immediately as these institutions hit the headlines. However, siloed data and disparate information made managing exposure harder than it should have been. Centralizing pipeline and portfolio information in a source of truth creates the visibility required to react on the spot to market fluctuations as historic market events play out in real time.
For example, Dealpath offers firms the efficiency and precision required to act with agility by reporting on exposure to lenders, sponsors or tenants, rather than waiting for an analyst to pull a report while the dust settles.
10. Creative Solutions to Interest Rate Cuts and Exploring Emerging Opportunities
Nearly all experts believe that rate cuts are certain, but often disagree on exactly when investors should expect calmer waters. Many, however, have retained a positive sentiment as market optimism prevails.
In light of this trend in commercial real estate, investors have adjusted their near- and long-term strategies to find new opportunities. For example, some firms are reducing leverage and moving up the capital stack to improve seniority and secure favorable terms to minimize risk. Similarly, investors that are overweight on certain assets can take steps to alter their portfolio composition.
Commercial Real Estate Lending & Debt Market Trends in 2024
11. Lenders are Capitalizing on Opportunities as $2T in CRE Debt Maturities Come Due
Another increasingly popular strategy for firms to remain active despite stormy conditions is launching a debt platform. Joining a significant number of players in the existing CRE lending space, a groundswell of equity firms have pivoted into debt. Beyond seeking out lower risk investments as equity markets pick up, debt platforms afford these institutions a chance to invest opportunistically.
According to a recent Newmark report, banks will face a $2T wave of CRE loan maturities over the next three years. When these loans reach maturity, equity investors will face the choice of either selling the asset to a new buyer or borrowing even more money to pay down maturities and retain their equity. In either scenario, an equity investor must borrow more money, creating ample opportunities, particularly for private credit investors willing to incur this level of risk.
To learn more about opportunities driven by the wave of maturities, watch our recent webinar.
12. Total CRE Loan Origination is Down 25% YoY
While CRE loan origination volume in Q4 of 2023 increased by 13% from Q3 in 2023, Q4 totals saw a 25% YoY decrease from 2022, according to MBA. This trend was led by the office sector, which saw the steepest decline at 68%, followed by healthcare at 39%, multifamily at 27%, and industrial at 7%. Retail and hospitality, on the other hand, increased by 50% and 81% from Q4, respectively.
In Q3, the total loan volume dropped by 49% YoY.
13. Percentage of Delinquent CRE Loans Backed by Office Properties Rising
Another area in which investors are seeing underperforming office assets come to light is loan delinquencies.
According to MBA, 6.5% of office loans were 30 or more days delinquent, an increase from 5.1% in Q3. These loans can also have a substantial impact on the office outlook. 30% of outstanding CMBS notes are backed by delinquent loans, creating a lasting mark on the sector outlook.
Commercial Real Estate Market Sector & Asset Class Trends in 2023
14. Retail Remains Resilient and Continues to Evolve
E-commerce was rapidly growing prior to the pandemic, but months of quarantine only accelerated this growth. By 2027, e-commerce is expected to account for 23% of retail sales–however, retail growth has now exceeded pre-pandemic growth.
According to an Altus Group report, retail has recently rallied as consumer spending has increased. In Q1 of 2024, retail had the lowest vacancy rate at 4.1%. The Q1 NAR report highlighted a 3.2% increase in asking rents.
Net absorption, which decreased by 33% YoY, remains higher than pre-pandemic levels. Houston, Texas, Chicago, Illinois, Dallas-Fort Worth, Texas, Austin, Texas and Atlanta, Georgia all ranked in the top five cities with the strongest net absorption over the past year.
Among the commercial real estate trends resulting from these conditions is the evolving role of retail. The purpose of physical stores is changing. Future-facing retail strategies prioritize an omnichannel approach to sales, engaging customers in-store, online, and via mobile.
Physical stores will continue to play the role of distribution centers, pick-up locations and showrooms, which will grow more sophisticated as augmented reality technologies help customers match products to their spaces. Customers may place orders online, but brick-and-mortar buildings will deliver an irreplaceable experience that drives brand loyalty.
Grocery-anchored retail continues the trend of outperforming other segments of the retail sector, driven by a customer base that has not defaulted to eCommerce.
15. Mall Declines in Popularity As Repurposing Continues
Like retail, malls also suffered a decline in foot traffic as e-commerce surged. Despite the shrinkage, opportunities within this sector still exist. Strip malls in densely populated residential areas are outpacing traditional malls, especially in terms of rent. Among other factors, mixed-use strip malls can attract a diverse range of tenants, such as grocery stores, salons, eateries and professional services.
According to the Q1 2024 NAR report, net absorption in malls was 1.82M, with only the “other” category ranking below it–a steep decline from 11.15M in 2016.
As firms continue to shutter malls in the wake of eCommerce’s boom, a commercial real estate trend toward commercial redevelopment has emerged. Blending residential units with other asset classes eases housing woes, while offering the all-important amenity of convenient shopping. According to the ULI, targeting existing malls for multifamily space also boosts sustainability by avoiding construction on greenfield sites.
16. Industrial Is Past Peak Performance, but Remains Strong
The e-commerce boom has set in motion many commercial real estate trends, most notably a strong boost in popularity for industrial properties like warehouses and final-mile fulfillment centers. While industrial continues to outperform other sectors based on the NAR March 2024 report, there are signals of slowing growth.
Net absorption dropped by 69% YoY in Q1 2024 as vacancy rates rose to 6.1%, an increase from 4.1% in 2023. Industrial rents grew by 5.5%, a steep fall from the previous 10% figure, while still surpassing other sectors.
Within the industrial sector, logistics spaces led the pack with a 6.5% increase in rent. Specialized spaces saw a 4.4% increase, while flex spaces saw a 3% increase in rent.
The top five cities with the strongest 12-month absorption were Dallas-Fort Worth, Texas, Houston, Texas, Chicago, Illinois, Phoenix, Arizona and Savannah, Georgia.
Healthy fundamentals underpin industrial’s relatively strong performance. Logistics will play a perpetual role for businesses of all sizes, including retail and eCommerce. That means building a network of distribution centers, spanning cities, highways, and even rural areas, is key to abiding by delivery time windows.
17. Slowing Down from Peak 2021 Growth, Multifamily Benefits from Strong Fundamentals
The multifamily sector continues to benefit from strong fundamentals, the perpetual need for housing and prohibitively high home mortgage rates. However, a rise in vacancy rates has slowed rent growth as the sector approaches equilibrium.
Compared to 2023, the net delivery of multifamily buildings has increased by 20%. This influx of supply has contributed to the 7.7% vacancy rate, a 10-year high. Consequently, rent growth across the sector has dropped to 0.7%–but not all markets have seen a decline. Rockford, Illinois, Kingsport, Tennessee, Salinas, California, and Youngstown, Ohio are breaking this multifamily real estate trend by delivering rent growth over 5%. Markets with the strongest 12-month absorption included New York, New York, Dallas-Fort Worth, Texas and Washington, DC.
18. Life Sciences Booms in a World With New Priorities
The pandemic exposed the need to devote more proactive attention toward medicine development, paving the way for life sciences to shine even brighter. After overcoming short-term challenges related to VC funding and resulting tenant demand in 2023, the life sciences market is already seeing positive signals in 2024. Overall, the sector may continue to moderate through 2024, following a post-pandemic boom.
Life sciences investors will continue to benefit from analyzing not only regional trends, which often miss nuances like submarket pricing, occupancy, funding, human capital, and other factors, but also hyperlocal trends, based on a JLL report.
According to CBRE’s report, average asking rents across the top 13 US life sciences markets increased by 4.1% to a record-high $70.07 per sq. ft for NNN space. The top 13 markets, including San Diego and Seattle, also showed positive net absorption in Q4. Life sciences also saw an increase in vacancy rates, largely due to a delivery of 4.3M square feet in vacant new construction.
While VC funding increased in Q2 and Q3 of 2023, it showed a downward YoY trend in Q4, despite being on par with rolling four-quarter-totals in early 2020. Nonetheless, ongoing drug development has shaped a promising market dynamic for life sciences investors.
19. Office Demand Low Amidst Ongoing Headwinds
Perhaps the most enduring commercial real estate trend sparked by the pandemic is the transition to remote and hybrid workplaces. Demand continues to decline YoY, with Q1 net absorption totaling -66.5 million square feet. In February, the amount of vacated office space surged by 119% YoY, causing the vacancy rate to reach a decade high of 13.8%.
Cities with the highest vacancy rates in Q1 of 2024 included San Francisco, California, Houston, Texas, Dallas-Fort Worth, Texas, Austin, Texas and Chicago, Illinois. The two cities with the lowest vacancy rates, Wilmington, North Carolina and Savannah, Georgia, are, notably, both located in the South.
20. Operational Real Estate Like Senior Living & Student Housing Are Trending Upward
While not a traditional focus for most investors, operational real estate in niche markets like senior living and student housing and life sciences have gained momentum. From 2020 to 2021, the percentage of total CRE investment on operational spaces doubled to 12.3%.
As the share of older Americans needing living facilities, this commercial real estate trend will likely gain steam. Rent growth in senior housing hit 6%, according to a report from Cushman & Wakefield. In Q4 of 2024, average senior living occupancy in primary markets rose to 85.1%, marking the tenth consecutive quarter of an upward trend since the pandemic, according to JD Supra.
According to RealPage Analytics, the student housing sector is experiencing the hottest pre-leasing season ever. Across 175 universities that were part of a RealPage analysis, 49% of beds had already been leased for the 2024 academic year. Additionally, these beds were leased at rents 6.7% higher than the previous year.
The best-performing universities included the University of Tennessee, Purdue University, the University of Arkansas and Virginia Tech, which all posted pre-lease rates of 80% or higher as of January.
21. The Rise of Single Family Home Rentals (SFR)
Amid a nationwide shortage of housing, single family home rentals help fill a critical gap in residential markets. They’re also catching the attention of some of the world’s largest institutional investors.
In early 2022, Blackstone made headlines for announcing it will dedicate another $1 billion on top of its existing $6 billion single family home rental portfolio. MetLife Investment Management closed a $390M SFR fund and made its first investment in August. By some projections, it could be the fastest-growing sector of the American housing market.
After weathering a demand slowdown in 2023, single family rental is back to a solid pace of rent increases. In February, SFR saw the highest annual appreciation since April, 2023, according to the CoreLogic Single Family Rent Index (SFRI). This data also signaled that Americans are migrating back to expensive coastal metros like New York, New York, Seattle, Washington, and Boston, Massachusetts, in contrast with 2023’s less expensive metros, which were St. Louis, Missouri, Charlotte, North Carolina, and Orlando, Florida.
Investors are increasingly noticing ample opportunity in this sector, especially as rents rise nationwide. High mortgage rates are also increasing demand for rentals, as many would-be homeowners push off purchases until interest rates ease.
Commercial Real Estate Technology (Proptech) Trends
22. Technology & Software Remain a Top Priority for Organizations of All Sizes, Across Verticals
When it comes to technology adoption, commercial real estate is pacing behind adjacent capital markets, like the equity market. The past few years have catalyzed the ongoing proptech revolution, during which firms gradually took on technologies that simplified outdated processes, particularly as AI-powered technologies have come to the forefront.
Many firms saw this phase of the market cycle as an opportunity to consolidate data and build efficiency across disparate systems. For example, centralizing pipeline and portfolio data in Dealpath enables firms to make smarter data-driven investment decisions, build cross-department efficiencies, and manage risk with real-time visibility into their portfolios. Other new technologies help property managers find ways to optimize the tenant experience using the IoT (internet of things).
The rapid and forced transition to remote work in March of 2020 only added fuel to the fire. Facing the new challenge of collaborating from remote environments, without the option for in-person meetings or casual conversations, commercial real estate firms recognized the immediate need to move to the cloud.
According to a Deloitte survey, 56% of respondents indicated that the pandemic exposed digital shortcomings. The pandemic created new urgency, and having recognized the value of modern technology, achieving full tech enablement has become a priority. 53% of respondents have a roadmap of where they’d like technology to take them, and 32% are restructuring internal processes based on technology and tools. 58% of surveyed REITs and 45% of developers said that they wanted to partner with technology companies, showing that firms are responsive to the evolving landscape.
23. Data-Driven Precision Will Determine the Winners of the Market’s Next Phase
In response to this proptech revolution, the market is also seeing a paradigm shift in which investors have the visibility required to make faster, more precise decisions. Global, national and regional data insights are arming firms of all sizes with enhanced data-driven precision, enhancing their competitive advantage.
From global institutions managing tens of billions in capital across numerous strategies to boutique investors dedicated to a specific space, centralization offers limitless opportunities, driving economies of scale. A proprietary deal database enables firms to uncover emerging real estate trends and seize opportunities before the competition.
24. Standardized Workflows Unlock New Operational Efficiency
Investment workflows, traditionally managed via Excel checklists and shared via email, created significant hurdles for firms operating in an increasingly digital world. As executives and investors alike prioritize operational efficiency, digital collaboration is becoming the new norm.
Centralizing standardized, role-based deal workflows in a single source of truth like Dealpath creates the efficiency teams need to collaborate in lockstep. Teams can spend time they previously spent on error-prone admin work tackling higher priorities, like deeper analysis. Consequently, they can make faster, better-informed decisions.
25. Cybersecurity Takes Center Stage as Data Security Comes Into Question
Data has always stood as a central pillar of the commercial real estate industry, but the new tools available have increasingly emphasized its value. Increasingly frequent data breaches, however, have highlighted the urgent need for a stronger focus on cybersecurity. To protect against ransomware attacks, firms need to take additional measures, using modern standards as the benchmark.
According to NAREIT, BDO USA LLP, a professional services firm, identified that 92% of the 100 largest publicly traded REITs considered cybersecurity a threat, up from 63% in 2015. 96% of office-focused REITs considered it a threat, as well as 93% in hospitality, and 92% in multifamily. From a financial standpoint, data has already more than proven the importance of increasing security measures. Kaspersky found that, on average, an enterprise-level breach cost $1.41 million in 2019, which increased from $1.23 million in 2018.
Throughout the lifecycle of an asset, data might flow through multiple systems as it is handed off through various departments. To sufficiently protect data at every touchpoint, firms must ensure that every platform data flows through meets required standards. From providing role-based access to platforms, to tracking user activity on those platforms, and sophisticated network controls, the need for an advanced approach to cybersecurity is stronger than ever.
As you audit existing platforms and add new ones to achieve these goals, look for best-in-class security standards, particularly SOC 2 Type 2 compliance, the industry standard in data security. With investors’ best interests in mind, the commercial real estate trend toward advanced cybersecurity will only become increasingly prevalent.
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