vacancy and occupancy by quarter of date-Baniqued Commercial Real Estate

Commercial Real Estate Market Insights: Key Trends to Watch in 2024

The commercial real estate market continues to be influenced by a variety of factors, including economic fluctuations, investor sentiment, and broader market forces. As we look towards the close of 2024, reports on asking price changes, cap rates, sale prices per square foot, occupancy rates, and inventory trends provide valuable insights into what investors, developers, and stakeholders should be aware of in the current landscape. In this blog post, we’ll explore these trends in detail to help you stay ahead of the curve in the commercial real estate market.

1. Asking Price Changes: A Downward Trend

median of asking price per sq ft by quarter of date and asset type-Baniqued Commercial Real Estate

One of the key indicators of market health is the change in asking prices over time. The commercial real estate sector has seen a consistent downward trend in asking prices since 2020. Particularly from mid-2022 to mid-2023, the asking price decreases were among the most pronounced, with a drop of -7.84% in 2022-Q3, which marked the steepest decline during this period.

The data suggests that while prices have begun to stabilize somewhat by 2024-Q3, the overall trend still reflects caution from sellers and developers in terms of setting prices. Many investors may find opportunities here, especially those who have been waiting for a dip in the market to make their moves. However, it is essential to approach with care, as the price reductions could also signal broader market adjustments related to economic factors like inflation and interest rates.

2. Cap Rates Remain Steady: Stability in Returns

median of cap rate by quarter of date and asset type-Baniqued Commercial Real Estate

Cap rates—another crucial metric in commercial real estate—have remained relatively steady over the past few years. Between 2020 and 2024, cap rates have fluctuated only slightly, maintaining a range of 6.71% to 7.00%.

For commercial real estate investors, this stability offers a reliable projection of returns, particularly for multifamily properties. Stable cap rates also signal that while property values may fluctuate, the income potential from these assets remains consistent. Investors looking for stable returns in uncertain times may find the commercial sector appealing, especially given the broader economic volatility in other asset classes.

3. Sale Price per Square Foot: Significant Growth

median of sale price per sq ft by quarter of sale date and asset type-Baniqued Commercial Real Estate

Perhaps one of the most notable trends in the commercial real estate market is the rise in the sale price per square foot for multifamily properties. From $111.59 per square foot in 2020, prices have increased dramatically, reaching over $213.03 per square foot by 2024.

This sharp increase underscores the growing value of commercial properties, especially multifamily units, which have been in high demand as urbanization and housing shortages drive prices up. Investors should be prepared to face higher acquisition costs, but the long-term appreciation potential makes it a worthwhile consideration for those looking to invest in assets with strong growth potential.

4. On-Market Occupancy and Vacancy Rates: A Balanced Market

vacancy and occupancy by quarter of date-Baniqued Commercial Real Estate

Occupancy and vacancy rates are essential indicators of market health and tenant demand. Occupancy rates have stayed relatively high over the past few years, hovering between 87% and 93%. Vacancy rates, however, have experienced a slight uptick, peaking at 12.9% in 2024-Q2, up from previous years.

This small increase in vacancy suggests a possible cooling in demand or an oversupply of certain property types in specific markets. For example, as more properties are listed and completed, developers and investors may need to focus on tenant retention strategies and differentiated offerings to maintain high occupancy levels.

That being said, the overall occupancy levels remain healthy, indicating that there is still significant demand for commercial space in most sectors. Whether you’re an investor looking to purchase properties or a developer preparing new projects, understanding the regional variations in vacancy and occupancy will be key to navigating this trend.

5. Inventory Trends: Volatility but Signs of Stabilization

inventory and % change from 12 month average by quarter of date-Baniqued Commercial Real Estate

Inventory trends are another crucial factor influencing the commercial real estate market. Beginning with relatively low levels in 2020, inventory surged significantly, peaking between mid-2022 and mid-2023, with an increase of 23.4%. This rise can be attributed to various factors, including increased development, sellers attempting to capitalize on rising prices, and economic uncertainty leading to more listings.

However, by 2024, inventory levels had begun to stabilize, settling back to a more modest increase of 12.89% by Q3. This suggests that while the market is still adjusting to the influx of properties, the balance between supply and demand is beginning to normalize. Investors should watch for potential opportunities as the market stabilizes, especially as inventory increases could signal potential deals for those ready to invest.

What These Trends Mean for Commercial Real Estate Investors

As we head towards the end of 2024, the commercial real estate market offers a mix of challenges and opportunities. The downward trend in asking prices could present a prime buying opportunity for investors looking to acquire assets at lower prices. At the same time, stable cap rates ensure reliable returns, particularly in the multifamily sector.

However, with the significant rise in sale prices per square foot, investors should be prepared for higher acquisition costs. The slight increase in vacancy rates highlights the need for careful tenant management and strategic property improvements to keep properties competitive in a slightly softer rental market. Finally, the stabilization of inventory trends suggests that the period of oversupply may be calming, allowing for more predictable market behavior moving forward.

In conclusion, while the commercial real estate market has experienced shifts in recent years, these trends point to a resilient sector that offers continued opportunities for informed and strategic investors. Keeping an eye on these metrics will be crucial for making the best investment decisions in the months and years ahead.

Popup

Name(Required)
Are You(Required)