Finance  ·  Analysis

Capital Markets Poised for Return to Normalcy in 2024: Report

A new CBRE forecast predicts 4.25% interest rates by year’s end and a higher 10-year Treasury — also: buy multifamily and industrial


A return to normalcy appears on the way for commercial real estate capital markets. 

Brokerage CBRE (CBRE), argues in its “U.S. Real Estate Outlook 2024” report that real estate values will eventually stabilize mid-year and that investment volume will edge closer to pre-pandemic numbers. 

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However, the firm noted that an expanded federal debt will keep the 10-year Treasury higher despite an abatement in inflation levels. Office vacancy values are expected to reach as high as 20 percent next year, too, even as multifamily and industrial remain strong plays for investors. 

“There is a bit more real estate pain ahead, but stabilization and the early stages of recovery aren’t far behind that,” said Richard Barkham, CBRE global chief economist and global head of research. “Investment volumes will be down overall for 2024 but will start an upturn in the second half. And leasing activity will pick up a bit from a sluggish 2023.”

The Dec. 13 Federal Reserve meeting certainly added extra juice to CBRE’s projections of stabilization and recovery, which were written before the Fed’s press conference. Federal Reserve Chairman Jerome Powell announced that interest rates would remain steady  through the end of the year and that the central bank is forecasting three rate cuts in 2024.

“The Fed will reduce short-term interest rates to around 4.25 percent by year-end 2024 and to 3.5 percent in 2025,” the CBRE report said. “This would be a much slower pace than during previous rate-reduction cycles due to the resilience of the U.S. economy.”

CBRE’s gang of chief economists predicts that unemployment will rise slightly to 4.5 percent in 2024. They also predict inflation will begin next year around 4 percent but will eventually fall to 2.7 percent 

“A weaker global economy will keep commodity prices muted, while a return to pre-pandemic supply chain efficiency will buoy the auto industry and an increase in labor supply will temper wage growth to more sustainable levels,” said the CBRE report.  

But just because Powell is expected to ease the benchmark Federal funds rate amid softening inflation, investors should not expect the 10-year Treasury — the single most important interest rate in CRE capital markets — to return to its pre-pandemic yields of less than 2 percent. 

CBRE cautioned that the federal deficit is unlikely to be reduced in 2024, which will concurrently put pressure on the government’s ability to finance itself, keeping 10-year Treasury yields higher (due to enhanced risk and lower bond prices) compared to where they were for the entire 2010s. 

CBRE believes that real estate values “for most property types” will stabilize in 2024. Cap rates are still expected to expand by 25 to 50 basis points next year for all asset classes other than office, which will create a corresponding property value decline of 5 percent to 15 percent. As property values stabilize next year, investment volumes and investment sales transactions are expected to improve after a terrible 2023.  

“Investment volume will decrease 5 percent in 2024, stabilizing after this year’s expected 45 percent fall,” according to CBRE. “All-cash buyers such as sovereign wealth funds, pension funds and endowments likely can pounce quickest on generational buying opportunities in the first half.” 

As for specific asset classes, CBRE continues to hold a negative view toward office, even as that sector is expected to improve slightly relative to its post-pandemic performance. CBRE believes office leasing will improve slightly in 2024, but the U.S. office sector as a whole will be weighed down by a forecasted vacancy rate of a whopping 19.8 percent, up from a vacancy rate of 12.4 percent in 2019. 

“Office construction will slow to the lowest level since 2014, raising the prospect of a shortage of available Class A space later in the year,” wrote CBRE. 

CBRE is much more confident in the performance of multifamily and industrial, which the firm predicts “will be most favored by investors in 2024.” The wave of more than 900,000 new apartments nationally is expected to “define” the multifamily sector next year, with construction starts then expected to decline to 70 percent of their 2022 peak, according to CBRE.

Industrial net absorption is expected to remain on par with robust 2023 levels, while construction completion will fall to half of 2023’s total, according to CBRE. Vacancies in the sector are expected to rise at the start of the year, but then decline once new construction tails off. 

“This sector will be active in 2024,” wrote CBRE. “The forecast 7.5 percent increase in U.S. industrial production over the next five years bodes well for demand for U.S. manufacturing and distribution space.” 

Brian Pascus can be reached at