11/12/24

It’s time to talk about commercial real estate (CRE)! While our teams love working with buyers/sellers, REALTORS®,  loan officers and more on the residential side of things, here’s another reminder that we want to lead your CRE files to the finish line, too!

Since the pandemic, commercial real estate has been a mixed bag. Of course, the retail and office sectors have had well-documented struggles, but there have been some bright spots. Industrial–especially warehouse space–and multifamily properties have generally remained strong and should stay that way. Furthermore, there’s talk that 2025 will be a rebound year, which would be great for everyone. Here are a few reasons to be optimistic:

The Federal Reserve cut was a big deal for CRE, too. The September decision to lower interest rates finally jump started a pivotal shift for the commercial real estate market and led to plenty of optimism. With rates expected to decrease further, from the current range of 5.25% to 5.5% to approximately 3.13% by the end of next year, financing conditions will become more favorable for both purchases and refi activity. This reduction in borrowing costs should stimulate investment activities as investors capitalize on cheaper capital to expand their portfolios.

CRE leaders are more hopeful now than they have been for some time. In a recent piece, Deloitte posed the question, “Is 2024 the bottom of the current commercial real estate market cycle?” and then gave plenty of evidence that the answer should be “Yes.” Part of the reasoning is that almost 9 out of 10 CRE players across the globe said they expect their company’s revenues to increase going forward, which was a 180 from the 60% who expected further declines last year.  

Other positive findings from this survey of more than 800 real estate professionals? 68% of respondents expect conditions for CRE fundamentals to improve in 2025 across areas such as cost of capital, capital availability, property prices, transaction activity, leasing activity, rental growth and vacancies. That statistic represents more than double the amount of people who had confidence in the same thing at this time last year.

The retail and office sectors will need to continue to adapt. As mentioned, investors and developers involved in retail and office properties have long been dealing with their own challenges and obstacles. For retail, it’s been the decades-long fight with changing consumer behavior. For office, it’s the rise of hybrid work and WFH, which were obviously accelerated by the pandemic. How stakeholders, business leaders, community officials and more get creative with these spaces will go a long way. Expect words like “flex space” and “mixed-use” to remain popular in both areas as developers and others look for ways to make their buildings unique and attractive to the modern consumer and, in the case of the office sector, employee.  

Opportunity will continue to be there for those who want it. CRE can still be a great investment – in both the short and long term – but you need to know where to look for properties that fit your budget, goals, and risk tolerance. Here’s some general advice: multifamily, especially around college towns and properties that data centers can utilize, represent two options that are certainly worth considering for anyone serious about CRE. Consider this story that said, “The market for data centers is in a full-scale upswing with a lot of tailwinds behind it,” and that apartment leasing across the country remains “extremely strong.”

We have one request from our commercial real estate friends and partners, no matter what happens these next two months or in 2025: Keep our teams in mind for your CRE projects in the future! Whether the project is down the street or across the state, we can apply our title and escrow expertise to your file anytime you need us. Let’s keep building great things together.