Frozen for more than two years, the U.S. commercial real estate market is thawing. Prices have corrected lower by 10%–20% depending on the sector, and while acquisition activity has yet to meaningfully rise, the ingredients for such a rebound are present. Strong tenant demand, peaking completions and improving capital markets liquidity all point to a more appetizing menu of investment opportunities in 2025 and beyond.
Key takeaways
- Property values and sales activity remain little changed three quarters into 2024.
- Most of the ingredients necessary for a durable CRE rebound are now in place.
- Cap rate spreads remain historically tight, limiting price upside in a potential recovery.
As we glide into the end of 2024, the U.S. commercial real estate market appears set to put the finishing touches on a second consecutive year of poor performance and muted activity. The impacts of an aggressive Fed hiking cycle that began in early 2022 continue to echo throughout the market, even as inflation has descended substantially without the need for a recession. While the market continues to face challenges and heaps of negative headlines, there is a fresh and unmistakable aura of positivity that has permeated the landscape in recent months. None of the catastrophic prophecies about CRE market devastation have come to pass, and investors are finally able to visualize a more hospitable market environment. In fact, as we lay out below, many of the ingredients necessary for a durable market rebound have fallen into place.
