Influence of Higher Interest Rates and Geopolitical Issues on Commercial Real Estate in the second half 2024.

Higher interest rates and geopolitical tensions are expected to significantly influence the commercial real estate landscape in the second half of 2024. Multifamily, retail, and industrial sectors continue to perform well, although office vacancies are on the rise.

Key Insights from Industry Experts

Victor Calanog, Global Head of Research and Strategy at Manulife Investment Management, highlights a stable outlook for rents and vacancies across most property types, excluding office spaces. He forecasts a significant rise in transaction activity, loan originations, and CMBS issuance by 25% to 30% compared to the lows of 2023.

Performance of Sectors

Multifamily, retail, and industrial sectors remain strong, while office vacancies are increasing. Commercial real estate owners and operators should focus on optimizing liquidity and safeguarding against fraud.

Trends and Opportunities

Liquidity Management: Investors should conserve liquidity for future opportunities and utilize treasury services and rent payment solutions to optimize cash.

Fraud Protection: With 65% of organizations experiencing fraud attempts in 2022, it’s crucial for commercial real estate owners to train their teams to identify and prevent fraud, especially in check and rent payments.

Workforce Housing: Innovative approaches to increase workforce housing supply are necessary, including rents for restricted units significantly lower than market rates to cater to a broader income range.

State of Commercial Real Estate Asset Classes

Interest Rates: The Federal Reserve aims to maintain higher interest rates to control inflation, impacting commercial real estate deals.

Geopolitical Tensions: Ongoing conflicts in Ukraine and the Middle East contribute to market volatility and can affect global supply chains.

Elections: Upcoming elections in over 70 countries, including the U.S., may lead to geopolitical uncertainty, influencing consumer confidence and spending.

Macroeconomic Factors

Office Vacancies: National office vacancy rates have reached a record high of 19.6% in Q4 2023. While some office properties in active locations may perform well, the overall demand remains uncertain.

Multifamily Properties: These continue to perform well, though some regions face oversupply, particularly in luxury properties.

Retail: Smaller, adaptable retail spaces, especially grocery anchored centers, are thriving.

Industrial: Driven by ecommerce growth and nearshoring trends, the demand for industrial properties remains strong.

Conclusion: By staying vigilant to these trends and optimizing strategies, commercial real estate investors can navigate the challenges and seize opportunities in the latter half of 2024.

Category	Insight	Details
General Outlook	Positive Outlook for Multifamily, Retail, and Industrial	Despite higher interest rates and geopolitical issues, these sectors continue to perform well, while office vacancies rise.
Liquidity Management	Optimize Liquidity	Conserve liquidity for future opportunities and use treasury services and rent payment solutions to optimize cash flow.
Fraud Protection	Safeguard Against Fraud	Train teams to identify and prevent cyberattacks and fraud, especially in check and rent payments.
Workforce Housing	Increase Supply	Innovative approaches to increase the workforce housing supply, including significant rent discounts for restricted units.
Interest Rates	Higher-for-Longer	The Federal Reserve aims to maintain higher interest rates to control inflation, impacting real estate deals.
Geopolitical Tensions	Market Volatility	Ongoing conflicts contribute to market volatility and can affect the global supply chain.
Upcoming Elections	Geopolitical Uncertainty	With elections in over 70 countries, geopolitical uncertainty may influence consumer confidence and spending.
Office Vacancies	Rising Vacancies	Office vacancy rates reached a record high, with uncertainty around future demand.
Multifamily Properties	Successful but Some Oversupply	Strong performance overall, but luxury properties face higher vacancy rates.
Retail Properties	Smaller, Smarter Spaces	Grocery-anchored centers and smaller concept stores are performing well.
Industrial Properties	Strong Demand	Driven by e-commerce growth and nearshoring trends, industrial properties remain in demand.