As we enter the new year 2024, let us dive deep into the dynamics that are likely to influence how the real estate industry evolves, and hence impact the decisions we make about buying, selling and investing in the property markets. This exploration will equip you with the knowledge needed to navigate the real estate market deftly, irrespective of whether you are a novice or a maestro! Let’s begin.
1. The trend of mixed working arrangements becoming the norm will continue, hence placing a ceiling on office demand growth. The vacancy rate for offices in the United States is predicted to reach its peak in 2024, reaching 19.8%. This is a rise from 18.4% in Q3 2023 and a significant increase from 12.1% at the end of 2019. While there is a minor increase in office leasing activity expected for 2024, it is imperative to remember that it will still be much lower than levels seen before the pandemic.
2. Retail real estate is likely to stay strong, owing to a lack of new buildings during the last decade. The industrial market should remain solid, with net absorption levels similar to those seen in 2023. A long-standing paucity of new retail construction will contribute to retail availability rates falling by 20 bps to 4.6% in 2024.
3. A mammoth influx of new apartments is expected in 2024, which should help stabilize rent rise and make housing more accessible for renters. 2024 is expected to bring a large number of new homes as over 900,000 units are now under construction! However, rent is only scheduled to rise by 1.2%, which is lesser than usual. Yes, there may be a few more empty places than before the epidemic, but it isn’t worrisome. Since there are still a lot of individuals looking for a place, the average occupancy rate is expected to remain over 94%.
4. The industrial and logistics sector will be active in 2024, with net absorption matching that of 2023 and annual rent rise easing to an 8% increase by year-end. By the end of the year, almost half of the building projects scheduled for 2023 will be completed. As a result, the vacancy rate is estimated to reach 5% by mid-2024, matching the five-year average. This increase compares to the 4.2% vacancy rate observed in the Q3 of 2023.
5. The hotel business may experience revenue per available room growth issues as a result of greater competition from alternative accommodation and a sluggish economy. However, fewer Americans traveling worldwide may improve the domestic market. Hotels in cities will profit well, and airport hotels will gain from increasing tourism, while resorts will develop slowly.
6. There's an increasing interest in new data center development, drawing more institutional investment in 2024. Investors are diverting capital from the office sector and towards alternatives such as data centers. Demand will continue to outstrip supply, rising pricing (on 250 kw to 500 kw requirements) by 10% to 15% in 2024, following a 16% increase in 2023.
7. While 2023 was demotivating for many aspiring homebuyers given that mortgage rates rose to a high of 7.79% in the third quarter, with median house prices exceeding $400,000. However, for some, 2024 may be a better year to buy a home. While house prices are expected to stay elevated (and even rise in certain regions), industry analysts predict that prices in some sections of the country will fall.
8. The jaw-dropping mortgage rates we've witnessed over the past few years caused a sharp decline in mortgage applications. However, let’s discuss some positive news- rates have started to come down in the past few weeks. The Mortgage Bankers Association predicts that the total volume of mortgage originations will increase, expecting it to rise from an expected $1.64 trillion in 2023 to $1.95 trillion next year. This is anticipated as rates are projected to drop to around 6% by the end of 2024.
Sources: CBRE, Forbes