JPMorgan Chase’s Al Brooks Gives His 2024 Midyear CRE Outlook

Rates hold as vacancies rise and wars drag on 


The commercial real estate outlook for the second half of 2024 is largely positive — multifamily continues to perform, as do industrial and retail. But challenges could lie ahead. The higher interest rate environment appears to be here to stay, and office vacancies continue to climb.

 “On the income side, drivers like rents and vacancies will likely be flat to stable for most property types, with the exception of office,” Victor Calanog, global head of research and strategy for real estate private markets at Manulife Investment Management, told me recently. “On the pricing side, it’s going to be a landmark year when it comes to price discovery. We’re forecasting transaction activity, loan originations and CMBS issuance to rise by 25 percent to 30 percent, relative to 2023 lows.”

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 Keep an eye on these commercial real estate trends, challenges and opportunities as we round out the year.

 Commercial real estate trends and opportunities

Trends moving into the second half of the year include critical fraud protections, new financing approaches to workforce housing, and liquidity optimization for future opportunities — and there will be opportunities. With that in mind, commercial real estate investors can:

Manage liquidity for the near future. While commercial real estate is eager for interest rate relief on loans, lower rates also mean lower returns on liquidity. Now is an excellent time for investors to conserve their liquidity for future opportunities and take advantage of Treasury services and rent payment solutions to optimize their cash.

Safeguard against fraud. According to the 2023 AFP Payments Fraud and Control Survey, 65 percent of organizations reported being victims of actual or attempted payments fraud activity in 2022. Commercial real estate owners and operators can be particularly susceptible to check fraud and rent payment fraud. Make sure to train — and test — your team on the best ways to spot and stop cyberattacks and fraud.

Increase workforce housing supply. Our Workforce Housing Solutions group is taking an innovative approach to increase the workforce housing supply, looking beyond area median income cutoffs and Low-Income Housing Tax Credit financing. “Instead, rents for restricted units must be a significant discount to unrestricted market rents,” said Lionel Lynch, head of the group. “This produces new housing with rents attainable for households at a wider income range than traditional affordable or market-rate housing.”

Macroeconomic factors’ influence on the industry. A higher-for-longer interest rate environment, geopolitical concerns and the upcoming presidential election could impact the economy.

Higher-for-longer interest rates. The Federal Reserve has made it clear that it will do whatever is necessary to bring inflation down to 2 percent. As of late, that means holding off on interest rate cuts until at least the second half of 2024, maintaining the current rate environment for now. “In this higher-for-longer rate environment, buyers, sellers and capital sources are going to come to the table ready to do deals,” Calanog said.

Ongoing global conflicts. The direct implications of geopolitical tension, including the ongoing wars in Ukraine and the Middle East, can be hard to measure. They often manifest as market volatility, and can also impact the global supply chain. “As long as local and global economic growth remains on track, there’s no reason to downgrade forecasts — for now,” Calanog said.

Upcoming elections: In the U.S., the combination of an upcoming presidential election and ongoing congressional gridlock could impact consumer confidence and spending, ultimately contributing to an ongoing high interest rate environment. The U.S. isn’t the only country with elections ahead. “With over 70 countries holding elections in 2024 — the highest number in history — geopolitical uncertainty around the world is likely to remain high through the year,” Calanog said.

The state of commercial real estate asset classes

Save for some Class A concessions, multifamily has performed well. Retail remains resilient, succeeding alongside e-commerce, which is helping fuel ongoing demand for industrial properties. However, the future of office is still up in the air.

Office vacancies rise. The national office vacancy rate rose to 19.6 percent in the fourth quarter of 2023, breaking the previous record of 19.3 percent. The 0.3 percent surge is also the largest quarterly increase since the first quarter of 2021, according to Moody’s Analytics CRE. While offices aren’t obsolete, it’s unclear how far demand will drop and how high vacancies will rise. “However, most desirable office properties in the most active locations will likely outperform,” Calanog said. “This pattern will likely persist over the next few years, which puts a greater onus for commercial real estate investors to evaluate risks and opportunities asset by asset, deal by deal.”

Multifamily successful, but some oversupply. Apartments and multifamily properties remain strong overall. There’s consistently a need for affordable and workforce housing. Class B and C properties saw a 4.6 percent vacancy rate in 2023, according to Moody’s Analytics CRE. Luxury properties’ vacancy rate was notably higher at 6.5 percent. As a result, many property managers are making concessions, primarily in the Sun Belt where obtaining building permits is easier, making overbuilding easier, too.

Smaller, smarter retail: Retail continues to perform well in 2024, especially grocery-anchored neighborhood shopping centers in densely populated areas. In line with this trend, many major big-box retailers are opening smaller concept stores. “The move toward smaller concept stores is a key part of retail’s evolution,” Calanog said. “The best performing retail properties will have owners and operators who are flexible and willing to adapt to what their most important tenants need.”

Industrial properties remain strong. Brick-and-mortar retail is thriving, and e-commerce sales have grown to 15.6 percent of retail sales, fueling demand for industrial properties. The growing trend of nearshoring along with the need to replace older, outdated industrial buildings could continue to drive construction and demand in the second half 2024 and beyond.

Al Brooks is head of commercial real estate banking at JPMorgan Chase.