Some CRE good news: Report predicts jump in sales activity in all four major asset classes … even office

Brokers, developers and lenders who worked through the challenges presented by high interest rates won’t be surprised to learn that investment sales volume fell for the second consecutive year in 2023.

But what about this year? Will investment sales activity pick up? A new report from Colliers predicts that it will. But how much this activity rises in 2024 is still unknown.

In its most recent Market Snapshot, Colliers points to an unsurprising reason for optimism in 2024: The Federal Reserve Board has signaled that it will no longer be increasing it benchmark interest rate. But while this is good news, there is some disappointment here: As Colliers says, the market initially predicted not just flat interest rates, but significant rate cuts this year. So far, that hasn’t happened.

At the same time, even with the Fed’s decision, borrowing costs will still be well above where they stood when many CRE deals originated, something that will cause challenges for the many refinancings expected this year. An estimated $2.8 trillion of loan maturities are expected through 2028. As Colliers asks in its report, how will these deals be capitalized?

What about individual asset classes? What does the future hold for them?

Multifamily: Colliers says that multifamily remained the most heavily transacted asset class as 2023 drew to a close. At the same time, it also posted the largest annual volume decline in sales activity of all the major asset classes last year.

Colliers reports that a record influx of new supply continues to impact the multifamily sector. This supply boost has resulted in falling asking rents in many parts of the country. Concessions are also on the rise.

However, Colliers says that multifamily is expected to remain the top choice of capital in 2024, leading all asset classes in sales volume. Fewer groundbreakings of new multifamily properties will take place this year, leading to an anticipated window of lower supply in the future, setting the multifamily market up for a new round of rent growth and stronger fundamentals.

Office: Colliers reports that office volume as a share of total sales hit a new low point in 2023, accounting for just 15.1% of all sales activity last year. CBD activity has been hit the hardest, with only $13.4 billion traded in 2023, the lowest volume since 2009.

The good news? Colliers says that the office market has likely hit bottom, and predicts that momentum and deal velocity will accelerate in 2024. Investors and lenders will be forced this year to move underperforming assets.

Industrial: The industrial market has long been a darling of investors. But even this sector saw sales activity fall in 2023, according to Colliers.

Sales volume last year aligned with activity in 2015 through 2019, according to Colliers. But the number of individual deals was lower, with today’s higher pricing propping up aggregate volume.

Sales volume peaked in the second quarter of 2023 and then declined in both the third and fourth quarters. Colliers, though, said that it expects increased sales activity in the industrial sector in the months ahead.

As Colliers says, industrial remains a highly liquid asset class, and should rank as the second-most heavily traded property type in 2024.

Retail: Retail bucked the trend in 2023, showing improved fundamentals last year. That led to an uptick in sales volume. According to Colliers, retail drove 16.7% of all sales volume in 2023, its highest aggregate mark since 2015.

Because of its strong 2023 performance, Colliers predicts that retail will become a potential landing spot for capital in 2024 and beyond.

The positives in the retail sector are many today. Colliers pointed to low unemployment, healthy job gains and wage growth as three of the bigger ones. There are some potential worries: Consumer delinquencies on credit card and auto loan debt have risen. But overall, consumers seem ready to continue spending, Colliers says.