What are the opportunities for commercial real estate in 2024? | Real Estate
In 2024, the commercial real estate outlook is optimistic, thanks to lower interest rates, Florida’s robust economy, and a significant capital influx into South Florida.
I recently participated in the CCIM Commercial Real Estate Outlook Conference, an event where industry leaders converge on the latest trends and insights within the capital market. The panelists portrayed an optimistic outlook.
According to Trepp, a leading provider of structured financed data and analytics, $3.2 billion worth of mortgage loans underwent modifications in 2023. The data further reveals that maturities are being spread through 2024-2027, suggesting a proactive measure that has contributed to mitigating potential delinquency risk.
The retail sector maintains its strong performance, evident in the upswing of consumer spending. This prompts one question: Is this surge attributed to consumers buying more, or is it because of inflation and paying more for goods bought?
One noteworthy trend is that retailers are shrinking the footprint of their physical stores. Also, there has been an influx of transit-oriented developments. One example is Grove Central, a mixed-use development located on US1 and SW 27 Ave., integrating residential and retail spaces anchored by Target, Five Below, and Total Wine.
While the office sector faces challenges in cities like San Francisco, New York, and Chicago, South Florida, particularly Miami, is an exception. Not long ago, class A space in Miami was leasing for $50-60 per square foot. However, a notable shift occurred, with the average for similar class space running $80 in 2023. In certain buildings, rents even exceeded the $100 per square foot mark.
Two noteworthy trends are shaping the office sector. First, companies are opting for smaller spaces, reflecting the ongoing prevalence of hybrid work arrangements. The other notable trend is that companies are prioritizing quality spaces with enhanced amenities to attract employees back to the office. As a result, class A offices are poised to outperform older class B and C offices.
The multifamily sector has shown resilience, benefiting from mortgage rates surpassing 7%. The higher rates have led to fewer borrowers qualifying for financing and electing to rent. In November, Fannie Mae lowered the required down payment to 5% for 2-4 multifamily units, presenting an opportunity to investors.
Commercial real estate activity is likely to pick up in the second half of 2024 as interest rates start to come down and investors take advantage of lower borrowing costs. With inflation under control, the focus now turns to the Federal Reserve to start easing. The consensus is for the Fed to cut rates five to six times in 2024.
Where are the opportunities?
Industrial and multifamily should perform well, thanks to the strong fundamentals and Florida’s thriving job market and housing demand. For those willing to take on renovations, value-added projects in multifamily and industrial Flex Space through physical and operational improvements should generate better cash flows and, thus, property values. Single and multi-tenant net lease properties with quality tenants also present an attractive option for passive investors looking to lock in today’s higher cap rates.
Fernando Echeverri is a broker specializing in commercial investment properties and works with Great Properties International on Key Biscayne. email@example.com or call (305) 458-6101