What to Expect from the Investment Real Estate Market of 2024
Happy 2024!
As we embark on the new year, it's imperative for investors to either have a well-defined plan in place or, at the very least, a clear idea of what to anticipate. Given the abundance of available data, having a strategic plan or being in the process of formulating one is paramount. Drawing insights from the information gathered by Marcus & Millichap, we can glean a comprehensive understanding of what to expect in 2024.
What to Expect from 2024
Here is a breakdown of what we could expect in 2024.
Softlanding Achieved: In the realm of the overall economy, a soft landing is anticipated. Inflation is on a downward trajectory, and the Federal Reserve has paused rate hikes. Simultaneously, there is contemplation regarding the possibility of reducing interest rates in late 2024. While there are still forces that could potentially disrupt the economy, the numbers are leaning in favor of a soft landing.
This should not be interpreted as an indicator that 2024 will be a robust year for economic growth. A soft landing implies a period of flat or nominal economic growth, with real economic expansion anticipated in 2025. Consequently, we can anticipate limited GDP growth in 2024, while the employment forecast is expected to show growth.
Industrial: It is expected that industrial property will regain its momentum in 2024, but it will still be below expectations. Net absorption will be +4% and new construction will be +7% while vacancy rates will rise by 6.1%. At the same time, most of the growth will be concentrated in 10 metros.
Multifamily: Single-family home prices continue to remain high for the majority, and the demand for apartments is expected to stay robust. Net absorption of apartment units is projected to reach 390K, while an additional 480K new units will be introduced to the market in 2024. This influx of newly constructed units is anticipated to contribute to maintaining rental growth at around 1.5%.
Office Space: This is a market that will persistently witness high vacancy rates, accompanied by a decline in asking rent. However, it's crucial to recognize that beneath the surface there is a nuanced understanding. Investors will discern a significant contrast when comparing urban offices to suburban ones. Additionally, factors such as the age and size of the building will play a pivotal role in driving demand.
Retail: When the pandemic hit, a lot of failing brands and stores were finally forced to close. Those that survived saw a surge in growth in 2021 followed by record profits in 2022. Retailers that focus on food and necessities saw the highest sales numbers, even when adjusted for inflation. While growth is expected to slow down in 2024, net absorption rates and asking rent will grow.
What it Means for Investors
Don't anticipate 2024 to be a year of record growth; instead, investors should temper their expectations. However, this doesn't imply a passive approach of waiting for 2025. Investors should proactively establish a plan for 2024 while also gearing up for what lies ahead in 2025. The future is unwritten, but that's not an excuse for idleness. Waiting to see what might happen is not a concrete strategy. It's essential to formulate a plan, execute it, and be ready to adjust if conditions evolve.
The Azucena Take provides an inside look into the investment real estate market using the research done by Marcus & Millichap.