I love predictions, let's look at a few and have some fun. If you do not have time to read the entire article, please allow me to extract and apply the relevant.
Source Article: Top CRE Predictions for 2024
1. The booming industrial market will begin to soften. "The super-hot industrial market that has seen the national average asking rent increase 0.9% to $9.73 and a vacancy of 4.7% for the third quarter of 2023 will begin to slow down due to extreme overvaluation and over 624.3 million square feet of new space under construction."
Soften, sure. How much? Probably more than expected. The amount of big box space coming on-line throughout the country is record setting. Every market and property type experiences cycles, it is probably Industrial's turn.
2. The Federal Reserve will begin lowering interest rates in the Summer of 2024. "Lower rates will be warranted because of lower inflation, the gigantic increase in the national debt to over $34 trillion and the Presidential election.
I am not wise or foolish enough to predict interest rates. I only hope we have some stabilization first and a slower descent than we had ascent. Interesting point of reference, we started 2023 with a 3.87% 10 year treasury and ended it with a 3.90% treasury.
3. The shadow CRE lending sector will increase loan volume substantially. "These lenders currently fund about 15% of all CRE loans and will see their market share rise as more distressed assets come to market for debt and as the banks and other regulated lenders maintain their conservative CRE financing policies."
Though I would like for CMBS lending to pick up, they will be competing with traditional lenders that are coming off of a slow 2023.
4. Office REITs will see robust returns. "Lower interest rates and a robust economy will lead to higher rents and occupancy in key markets."
I agree, the national headlines about large MSA's and corporate downsizings tainted the entire office market. Not all office properties and MSA's are the same.
5. CRE in high growth low tax states will outperform high tax states. "The U.S. CRE market has become bifurcated with the high growth low tax states substantially outperforming the low growth high tax states."
Welcome to Nevada my friends. My only concern is what happens when lower taxes are not enough to draw investment. California has not fallen off the CRE map yet folks and they tax everything.
6. The large bid-ask spread in CRE will begin to narrow. "By the summer of next (this) year, this bid-ask spread will narrow as the Fed begins reducing interest rates and debt capital is priced lower and becomes more readily available. Sales and financing volumes will increase substantially from 2023."
We are already experiencing an increase in activity, but there is a problem. If rates fall too quickly, we will return to the "wait and see" attitude of 2023. We need months of stability to set a new normal then a slow decline.
Do you have any predictions to share?
Kyle Nagy, President | knagy@commcap.com | 702.792.7553
Kyle Nagy is a founder and Director of CommCap Advisors. Kyle started his commercial real estate career in 1999 as the Real Estate Analyst for the Las Vegas office of GMAC Commercial Mortgage, an international real estate finance company. Prior to leaving and forming CommCap, Kyle was instrumental in the growth and success of the Las Vegas GMAC office and was one of the youngest Vice Presidents within the company. During his finance career, Kyle has successfully originated, underwritten, and closed over $900 million in loans with Life insurance Company, Wall Street Conduit, Bank and Agency Lenders.