Q1 2024

Commercial Real Estate Market Update

This market update is provided each quarter to bring you informed perspectives from our commercial real estate and financial experts to support your business.

Current view of macro-economic conditions

Michael Skordeles, AIF®, Head of U.S. Economics at Truist Advisory Services, Inc.

Economic growth is set to step down in 2024 due to the cumulative effects of higher interest rates. That’s particularly true for interest rate sensitive, big-ticket purchases such as homebuying, automobiles, and appliances. Yet, the U.S. has continued to sidestep a recession thanks to consumers, who have proven more resilient than expected.

Retail sales have remained solid, hitting an all-time high in both nominal and real terms.

Manufacturing has slowly begun to recover as core capital goods orders (ex-air & defense) have also hit a fresh all-time high. Inflation remains a wildcard. While it has declined from peak levels in 2022, inflation likely won’t go all the way back down to prepandemic levels.

The resilience of the U.S. economy has pushed Fed rate cuts back a few months from market expectations. We believe it’s likely that the Fed will lower rates in May 2024. That would ease financing pressures on consumers and businesses alike, making a soft landing more achievable.

U.S. Treasury yields are more than a full percentage point (1%) lower than their mid-October peak. While federal deficits and strong government debt issuance may dampen moves lower, yields tend to fall in environments like today – where growth is stepping down and the Fed is preparing to begin loosening monetary policy. 

Take a deeper dive into the latest market and economic conditions with detailed analysis from our economists and thought leaders.

REIT & equities market outlook 

While uncertainties remain, financial market sentiment is improved entering 2024 with the expectation that the Fed cuts rates in 2024 and we achieve a soft landing.

Real Estate Investment Trust (REIT) capital raising began with a flurry in January, following a muted issuance environment in 2023. Lower rates and spreads have spurred Debt Capital Markets (DCM) activity, and improved valuations after the Q423 rally led to several equity or equity-linked issuances. The IPO pipeline is robust, and we expect to see increased deal activity in 2024.

Asset acquisition activity remains slow, given ongoing buyer/seller disconnects on valuation, but the gap is narrowing as is the public/private market valuation disconnect. REITs are lowly levered and private equity (PE) firms are sitting on record dry powder, so these clients are well-positioned to capitalize when a more normal transaction environment ensues.

Impact of interest rates on multifamily/industrial markets 

The early theme of 2024 for the CRE market is cautious optimism against some lingering headwinds. Optimism is supported by expectations as peak interest rates have been achieved with downward movement likely to occur sometime this year, along with early signs of softening construction costs for new construction opportunities. Delivery of new industrial and multifamily supply, especially in high growth markets, could create temporary pockets of slower absorption.

Trades (sales and purchases) remains generally muted across all asset classes as cap rate discovery continues along with adjusting return expectations. A lower interest rate environment along with more reinvestment opportunities (purchase or new construction) could spur activity later this year. 

Economic outlook for agency finance 

Federal Housing Finance Agency has announced the volume caps for Fannie Mae and Freddie Mac for 2024 at $70B each; down from $75B in 2023. In a continuation of policy emphasizing affordability, many loans supporting affordable and workforce housing will be exempt from the cap. Permanent loan production for multifamily should rebound in 2024 as the market works through this cycle’s peak delivery volume. With “higher for longer” interest rates and inflationary pressure on expenses, property trades are likely to remain muted compared to the peak with some level of pricing discovery still at play. The more aggressive construction loan leverage from this cycle will continue to result in cash-in refinances, which will put a premium on liquidity and innovative capital stacks. The year will also include some tension between owners who want extensions and lenders who prefer a full refinance. Decreased values will surely result in some workout scenarios, but with lots of equity still to protect, we expect healthy transaction volume.

Outlook for affordable housing markets

The overall affordable housing space remains healthy, and 2023 was an active year for originations, despite the challenging rate environment, rising insurance costs, and supply chain disruptions. Deal closing timelines were extended as many required additional allocations of tax credits or other soft sources of financing to balance development budgets as costs rose. Given tight occupancy rates and increasing needs for more affordable units across most communities, tax credit equity, bank construction debt and agency permanent debt remain accessible for projects in most markets, particularly more competitive Community Reinvestment Act (CRA) markets. Affordable portfolios across the industry continue to perform well with strong overall occupancy levels, debt service coverage and little to no foreclosures. Post-pandemic, there remain some pockets of lower economic occupancy as COVID-era rental subsidies have ended.

In mid-January, a bipartisan tax framework was announced which would have major shortterm positive implications for the affordable space. The framework would restore the 12.5% increase in annual 9% low-income housing tax credit (LIHTC) allocations for 2023-25 and reduce the bond financing threshold for 4% LIHTC to 30% from the current 50% for 2024- 25. Both measures would effectively increase tax credit resources to provide more than 200,000 new and preserved affordable housing units according to an estimate provided by Novogradac. At the end of January, this framework was formalized into legislation called The Tax Relief for American Families and Workers Act of 2024 and passed the House by an overwhelming majority. The path forward in the Senate remains unclear despite solid bipartisan support with efforts continuing to urge immediate passage. Both provisions would expire in 2025 along with the New Market Tax Credit, and therefore some type of tax extenders legislation will be needed in 2025.

More insights from our experts




    We hope to see you at these upcoming events:

    Georgia Affordable Housing Coalition Conference
    Mar 6-8, Savannah, GA

    ULI Spring Conference
    April 8-11, New York

    CohnReznick’s New Market Tax Credit Summit
    May 13-15, Miami 

    Affordable Housing Symposium
    May 21-22, Washington, DC

    NAOIP National Forums Symposium
    May 8-10, Minneapolis, MN

    Connect with us

    Kris Dickson*
    Head of Truist Real Estate Corporate Investment Banking

    *Licensed with FINRA

    Joe Pella
    Head of Truist National Real Estate Group

    Adam Oates
    Head of Grandbridge Real Estate Capital

    Keitt King
    Head of Truist Community Capital

    Better partnerships are built from the ground up.SM

    Our dedicated CRE team remains focused on delivering thoughtful solutions to our clients through these transitioning market environments. In addition to balance sheet and Grandbridge mortgage banking capabilities, our team can deliver insurance solutions through our McGriff Insurance subsidiary. Visit our website for more information about Truist Commercial Real Estate.