Crexi National CRE Trends Report Q3 2024

What Happened in Q3 2024?

Federal Reserve Policy Shift Signals New Market Phase

In a significant policy shift, the Federal Open Market Committee (FOMC) announced a 50 basis point (bps) reduction in the target federal funds rate range in September 2024, bringing it to 4.75-5%.[1] This marks the first interest rate cut since November 2022 and signals the Federal Reserve’s response to cooling inflation (up by only 0.2% in September) and a strengthening labor market.[2, 3] The rate cut, twice as large as the 25 bps cut that was anticipated, was welcomed by the commercial real estate industry, following months of navigating a period of higher borrowing costs and tightened capital availability, and a hopeful promise of continued relief in the meetings to come.[4]

The rate cut reflects the Fed’s growing confidence in economic signals, including better-than-expected quarterly job reports and slowing inflation.[5] While there is some lag time between Fed moves and banks lowering actual lending rates, these lower borrowing costs are expected to stimulate refinancing activities and new investments across various CRE sectors.

However, Jerome Powell has emphasized that while further rate cuts are possible, (and one more 25 bps cut indeed arrived in November), the Fed is not on a “preset course,” indicating a cautious approach to its monetary policy.[6] The rate reduction has also been met with mixed reactions by commercial real estate analysts. On one hand, lower interest rates can reduce borrowing costs, potentially spurring investment and refinancing activities. On the other hand, some analysts caution that rate cuts might signal underlying economic weaknesses that could impact long-term CRE valuations.[7]

Overall, there’s still some wait-and-see in the market. Market shifts often occur gradually in CRE. Due to typical 90+ day transaction timelines and lagging market responses, stakeholders may not immediately see the full impact of these changes. Election years also can spell changes for the real estate market, which may impact investor behavior, though not as much as other economic factors.

Despite this, indicators both in the market and on Crexi pointed to the start of a new cycle, punctuated by a bottom we most likely have reached and showing early signs of growth. For example, we’ve seen healthy buyer activity on Crexi’s auction platform, with capital becoming more readily available and investors ready to seize good deals ahead of a larger investor return-to-market.

Market Sentiment and Performance Metrics Show Optimism

The mood within the CRE market has shifted toward optimism, buoyed by positive macroeconomic developments and the Fed’s more accommodating policy changes. The likelihood of an economic soft landing has increased throughout 2024, with relative stability emerging across most CRE sectors.[8]

The Commercial Real Estate Finance Council’s (CREFC) 3Q 2024 Sentiment Index, comprised of responses from 275 senior industry executives, also reveals an improving but cautious outlook.[9] While 62% of respondents anticipate better market conditions over the next 12 months, concerns about credit availability persist, with 48% expecting either static or tightening lending conditions. This bifurcated sentiment reflects the complex dynamics of a market transitioning from a period of monetary tightening to one of potential easing.

A look into delinquencies in the market also provides a nuanced picture. CMBS delinquency data shows overall rates climbing to 5.71% in September from 5.44% in August, with particular stress in retail (7.2%, up 45 bps month-over-month) and multifamily (4.8%, up 32 bps).[10] However, these headline figures mask significant variance across markets and asset quality tiers. Class A properties in primary markets maintain stable performance, though secondary market assets, particularly those facing near-term debt maturities, show more stressed fundamentals. While optimism is cautiously rising, the industry is acutely aware that significant challenges remain and must be proactively addressed.

"It's likely market-trough was reached in Q2 and Q3 and we are entering a new expansion phase led by the Fed’s interest rate relief. Eventually, decreased borrowing costs should lift pricing, giving sellers a long-awaited window to transact. Overall fundamentals remain relatively solid with supply for most product-types held mostly in check.

However, many markets and product types might be slow to recover – if they recover at all. A wave of distressed transactions could show up early in the cycle as more favorable pricing presents an opportunity to cleanse balance sheets and dispose of more challenged assets.” - Eli Randel, COO, Crexi

Addressing the Debt Maturity Challenge: A Story in Creative Problem Solving

The CRE industry still faces the challenge of significant debt maturities on the horizon, with approximately $2 trillion in commercial real estate loans set to mature by the end of 2026.[11] Factors such as oversupply in certain markets, rising operating expenses, and previously too-high leverage levels are contributing to concerns about asset values and refinancing risks. Office properties represent the largest share at 32% of maturing debt, followed by multifamily (28%), retail (18%), industrial (12%), and other property types (10%).[12] This maturity wave is prompting innovative financing solutions across the capital stack. Serious buyers were acting more decisively and moving forward with transactions.

Operators in Q3 continued responding with innovative strategies to address these challenges. Debt restructuring with lenders to extend maturities or adjust interest rates - especially with the rate cuts – as well as asset repurposing are helping properties better meet current market demands and improve ROI.[13] Alternative and non-traditional financing sources such as private equity, mezzanine debt, or crowdfunding platforms have also proven increasingly popular.[14] With the recent interest rate cut, many financiers are ready to make a deal, making refinancing a more viable option for many looking forward.

As we enter the end of 2024, several key metrics suggest improving market conditions. Bid-ask spreads are mostly narrowing from Q2 2024, average marketing periods are decreasing across the board (as seen below), and opportunistic capital raising is starting to turn a corner.[15]While the office sector continues to face headwinds from hybrid work patterns and elevated financing costs, other property types show encouraging signs of price discovery and transaction activity. There’s still a way to go, but most CRE players feel we’ve reached the trough and look forward to the upward momentum.

"Ahead of 2025, we’re seeing encouraging signs that the commercial real estate industry is beginning to stabilize. The recent shift in Fed policy toward interest rates offers a timely boost, helping to realign capital flow and create conditions for new investment. While certain markets and asset types will continue to face headwinds, the industry overall is positioned for renewed activity and strategic growth opportunities. This new phase gives us the momentum we’ve been waiting for, and Crexi is seeing early indicators of a healthier, more resilient market on the horizon.” - Mike DeGiorgio, CEO, Crexi

Commercial Real Estate National Trends

What the Data Says

Key Analysis

• Total buy actions on Crexi rose by 5.19% quarter-over-quarter and 7.06% year-over-year, indicating increasing investor confidence in the CRE market. This uptick is reflected across all major asset types, with industrial up 5.5%, office up 5.93%, retail up 4.87%, and multifamily up 4.97% quarterly.

• Offers for properties overall increased by 6.47% QoQ and 2.28% YoY. The rise in offers, could mean that serious buyers were acting more decisively and moving forward with transactions, capitalizing on opportunities created by market adjustments.

• On Crexi’s leasing side, total tenant activity was down a marginal 1.82% with hardly any shift year-over-year. The decrease is observed across most sectors, with industrial tenant activity down most noticeably by 3.42% quarterly, though no change was posted from this time last year.

Industrial Trends

Analysis

• Industrial assets’ median annual asking rent per square foot remained stable at $13.20 from Q2 to Q3 2024, while the median annual effective rent per square foot increased from $9.50 to $12.00 QoQ. This indicates a potential reduction in leasing incentives or concessions, reflecting landlord confidence in the sector.
• Buyer activity indicators for industrial properties showed positive signs, increasing by a healthy 5.50% QoQ and 9.74% YoY. The sustained growth in interest is likely driven by the continued strength of e-commerce and the need for logistics and distribution centers, especially heading into the busiest holiday season. While increased market supply might temper competitive sale prices, buyers are still highly interested in industrial acquisitions.
• The median asking cap rate for industrial properties rose from 7.16% in Q2 2024 to 7.36% in Q3 2024, while the median sold cap rate decreased slightly from 7.32% to 7.10%. The widening spread suggests that while perceived risk is heightening for industrial properties, buyers are closing deals at slightly lower cap rates, with strong competition for quality assets.
• Tenant activity indicators on Crexi fell by 3.42% QoQ but edged up 0.28% YoY. The short-term decline may be due to supply chain adjustments or temporary market fluctuations, but the annual increase points to underlying strength in tenant demand.

Office Trends

Analysis

• On Crexi, the median annual asking price per square foot for office properties increased from $227.21 in Q2 2024 to $249.76 in Q3 2024. However, the median closed price per square foot decreased from $159.10 to $152.43 QoQ. This disparity reflects the continued gap between seller expectations and buyer valuations, especially due to office’s future uncertainty. Newly added Class A assets were the primary drivers of higher asking prices, but closed deals showed lower valuations related to the overall lag in CRE deal timelines. Higher asking prices indicate a potential bottoming out of the sector.
• Buyer activity indicators for office assets rose by 5.93%QoQ but decreased by 6.65% YoY. The QoQ growth suggests renewed interest in office investments, possibly due to price adjustments or speculative plays on market recovery, while the annual decline indicates that overall interest remains subdued compared to the previous year.
• On the leasing side, however, effective rents are starting to catch up to their asking counterparts. Median annual asking rents held steady at $20.00 per square foot in Q3, while median annual effective rents increased from $16.77 to $19.43 QoQ. The rise in effective rents, again, relates to the high demand of Class A assets, which command a higher rate per square foot than their less fancy counterparts.
• Tenant activity indicators dropped by 2.63% QoQ for offices but increased by 1.59% YoY. The annual improvement may suggest that some companies are beginning to re-evaluate their space needs positively, balancing remote work with in-office requirements as the value of in-person collaboration becomes ever-more apparent.

Retail Trends

Analysis

• The median annual asking price per square foot for retail assets decreased marginally from $282.60 in Q2 2024 to $287.37 in Q3 2024. While not a significant shift, it could indicate minor market corrections or adjustments to better align with buyer expectations, even though retail’s demand remains robust. The strong interest is attributed to retail’s continued strong performance amidst adaptive reuse opportunities, the resurgence of experiential retail, and investors seeking more consistent yields compared to other asset classes – especially among NNN lease properties.
• Median annual asking rents held steady at $18.50 in Q3, while median annual effective rents rose significantly from $14.00 to $20.00 per square foot annually. The increase in effective rents suggests that landlords are reducing concessions and correcting upward to account for improved leasing conditions or higher perceived tenant demand in prime locations, even though tenant activity indicators on Crexi fell by ~1.05% in Q3 2024.

Multifamily Trends

Analysis

• Multifamily median annual asking prices per square foot remained relatively unchanged at around $170.00 QoQ, while the median closed price per square foot increased from $208.17 to $212.71. This suggests that strong buyer demand is pushing up sale prices, even as sellers maintain their pricing.
• Buyer activity indicators rose by 4.57%QoQ and 0.99% YoY, with continued demand expected to grow in the coming quarters as housing needs became a hot-button election issue. The steady interest also underscores the multifamily sector’s resilience, driven by sustained housing demand and demographic trends favoring rental living.
• Multifamily assets ranked second in search popularity on Crexi, with search activity up 10.46% from Q2 2024 and overall buy actions up 4.57% quarterly. This high level of interest suggests that investors are actively seeking opportunities in the multifamily market and engaging with sellers to close deals.

Final Thoughts

The third quarter of 2024 has been a transformative period for the commercial real estate industry. The Federal Reserve’s first interest rate cut in nearly two years, combined with a better-than-expected jobs report and cooling inflation, has injected renewed optimism into the market. While challenges like looming debt maturities persist, industry stakeholders are proactively developing creative solutions to navigate these hurdles.

With positive macroeconomic indicators and adaptive strategies, the CRE market is poised for a period of sustained growth and opportunity.

Metrics and Methodology

This article relies on data from Crexi’s marketplace. In particular, to ascertain timely and representative trends in seller sentiment, this article focuses on offering metrics, such as average asking price per square foot, cap rate, and monthly rents, in addition to listed occupancy, tenancy, and square footage. Using these listing-based metrics and changes therein, we can use seller expectations at the time of listing to approximate overall valuation trends.

While these data aggregations may broadly reflect prevailing market conditions, it is essential to note that variations can also be affected by inventory changes, asset size, etc. We pair these data points with internal data from Crexi buyers on search trends and acquisition-related actions performed on Crexi to provide a holistic understanding of where both sides of commercial real estate are headed.

Disclaimer

The information in this report is based on Crexi's internal marketplace data and additional external sources that we consider reliable, but we do not represent it as accurate or complete. 

Crexi internal marketplace data consists of aggregated property-level data points provided by brokers and reviewed internally by Crexi. While these data aggregations may largely reflect prevailing market conditions, variations can also be affected by inventory changes, asset size and other factors. 

Nothing contained on this report or website is intended to be construed as investing advice. Any reference to an investment's past or potential performance should not be construed as a recommendation or guarantee towards a specific outcome. The information, opinions, estimates and forecasts contained in this report are as of the date of the article and are subject to change without prior notification.

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1. https://www.federalreserve.gov/newsevents/pressreleases/monetary20240918a.htm

2. http://www.bls.gov/cpi/ 

3. https://www.cnn.com/2024/09/18/economy/interest-rate-cut-decision/index.html

4. https://cre.moodysanalytics.com/insights/cre-news/the-first-rate-cut-is-here-now-what/

5. https://www.bls.gov/news.release/empsit.nr0.htm

6. https://www.cnbc.com/2024/09/30/powell-indicates-further-rate-cuts-but-insists-the-fed-is-not-on-any-preset-course.html

7. http://www.investopedia.com/will-fed-rate-cuts-save-commercial-real-estate-cre-loans-banks-8719181

8. https://cre.moodysanalytics.com/insights/cre-trends/q3-2024-preliminary-trend-announcement/

9. https://cmbs.informz.net/cmbs/data/images/CREFC%203Q24%20BOG%20Survey%20Results.pdf

10. https://www.trepp.com/trepptalk/mbs-delinquency-rate-jumps-in-september-2024

11. https://urbanland.uli.org/capital-markets-and-finance/commercial-real-estates-wall-of-maturities

12. https://www.cbre.com/insights/briefs/some-distress-will-emerge-amid-wall-of-loan-maturities

13. https://www.bloomberg.com/news/articles/2024-09-24/commercial-real-estate-activity-picks-up-with-buyers-lenders-returning

14. https://preqin.com/insights/research/reports/investor-outlook-h2-2024

15. https://www.reuters.com/markets/us/us-office-market-shows-signs-bottoming-after-big-discount-sales-2024-10-03/