Office is Outlier as CRE Deals Dip to Lowest Point in 13 Years

Commercial real estate activity has plummeted, hitting its lowest levels since 2011, with no clear bottom in sight.

Han-Gwon Lung & Jordan B.
November 22, 2024

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Good morning. National CRE deal activity has fallen to its lowest point in 13 years in 2024. Surprisingly, office properties are an unexpected bright spot in the otherwise murky outlook.

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Market Snapshot

S&P 500

GSPC

5,948.71

Pct Chg:
+0.53%

FTSE NAREIT

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818.67

Pct Chg:
+0.64%

10Y Treasury

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SOFR

30-DAY AVERAGE

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Pct Chg:
0.0%

*Data as of 11/21/2024 market close.

MARKET OUTLOOK

CRE Transactions Hit Lowest Levels Since 2011

Altus Group

A sharp decline in CRE transactions signals the slowest activity since the post-Great Recession years, according to Altus Group.

Historic lows: The Altus Group analyzed non-distressed, single-property sales across multifamily, industrial, office, retail, hospitality, and mixed-use. The report found that 2024 marked the lowest deal count since 2011, the lowest total dollar volume since 2013, and the lowest square footage transacted since 2010. Although average PSF prices rose by 1.2% from Q2 to Q3, they were still down 1.6% on a YoY basis.

Quarterly report: Quarterly trends showed declines across most asset classes, with multifamily deals down 12.3%, office down 11.5%, and retail and industrial each posting around 10% declines. Hospitality was a notable exception, showing a 9.2% increase in deal activity during the same period.

Annual analysis: YoY performance painted an equally bleak picture, with all major CRE sectors reporting reduced transactions. Office properties fell 15.4%, multifamily declined 11.4%, and retail fell 8.7%. Industrial properties showed a smaller reduction of 5.6%, while even the resilient hospitality sector fell by 6.5% compared to last year’s figures.

Surprising outlier: Amid widespread declines, the office sector defied expectations by showing growth in some key metrics. Dollar volumes shot up by 20.8% annually and 15.5% quarterly, while square footage transacted rose by 4.4% annually. These gains were an anomaly in an otherwise challenging market and suggest certain office properties may still hold appeal despite broader challenges.

➥ THE TAKEAWAY

Are we there yet? While some analysts believe the CRE market is approaching an inflection point, Altus Group’s data suggests an uneven recovery. Predictions of a turnaround hinge on improving economic conditions and investor confidence.

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✍️ Editor’s Picks

Rebound momentum: Investor confidence is rising as the Fed signals potential rate cuts through 2025, with multifamily and industrial assets poised to lead the commercial real estate recovery.
Raising capital in 2025: Learn how top firms are adapting to shifting markets, leveraging private equity, and overcoming challenges like rising costs and interest rates to stay competitive in Agora’s 2025 Real estate capital raising insights report. (sponsored)
Strategic growth: NewPoint Real Estate Capital is pursuing options to secure over $400M in strategic capital, aiming to expand its lending platform amid high borrowing costs.
Liquidity lockdown: KingSett Capital has frozen distributions and redemptions for its $3.5B Canadian Real Estate Income Fund until December 2025, citing property value declines and market illiquidity.
New build boom: Invitation Homes (INVH) launched a $200M JV to acquire newly constructed homes in high-growth markets, aiming to deploy $500M in total and expand its single-family rental portfolio.
Resilient jobs: US initial jobless claims dropped to 213K, the lowest since April, highlighting labor market strength despite a rise in continuing claims linked to fallout from the Boeing (BA) strike.
Offset overhaul: Forestry-based carbon credits, despite some overstated emissions savings, got a boost with new ICVCM methods to restore trust in the voluntary carbon market.

🏘️ MULTIFAMILY

Rental reshuffle: DC claimed the top spot nationwide for rental activity in October, while the South continued its dominance with 14 cities ranking in the top 30 metros.
Multifamily surge: The multifamily market added 1.8M units from 2020 to 2024, with two-thirds in the Sun Belt, led by Austin, which saw a record-breaking increase of 45K units over previous cycles.
Foreclosure averted: The Chetrit Group refinanced its 1.3K-unit Two Bridges development site in Lower Manhattan, injecting additional equity to secure a one-year loan extension and avoid foreclosure.
Lifestyle shift: Renting is now a long-term choice for many Americans motivated by high homeownership costs and a desire for community, with nearly half of renters preferring it over buying.
Steep discount: Related Companies sold a Prospect Heights rental portfolio for $16M—nearly 50% less than its 2016 purchase price—amid challenges from stricter rent regulations.

🏭 Industrial

Storage strategy: Buchanan Street Partners is advancing its goal of a $500M self-storage portfolio, purchasing and redeveloping an Inland Empire medical office building into a 1,180-unit facility.
Cool expansion: Cold storage development is surging, with Dallas leading US markets by adding 2.9 MSF since 2019, as growing demand for temperature-controlled logistics reshapes industrial.
From crypto to AI: Core Scientific (CORZ) is repurposing its Texas BTC campus into a $6.1B data center hub, capitalizing on the AI boom and offering more stable revenue streams than crypto mining.
Industrial expansion: Indus Realty Trust (INDT) entered the Phoenix market with a $72.4M acquisition of a fully leased 393.5 KSF logistics center near Sky Harbor Airport.

🏬 RETAIL

Soho resurgence: Blackstone’s (BX) $200M acquisition of a Soho retail portfolio marks NYC’s largest investor-led retail deal since 2021, as the market rebounds with rents surging 35% YoY.
Steakhouse legacy: Tilman Fertitta acquired the historic Midtown South property housing Keens Steakhouse for $30M, committing to preserve the iconic 140-year-old institution.
Loan troubles: Developer Leo Pustilnikov is negotiating with UBS to resolve a $19M loan default on his Santa Monica 3rd Street Promenade property.

🏢 OFFICE

Fulton milestone: Adyen’s 97 KSF lease at 333 North Green Street, the largest office deal in Chicago this year, underscores Fulton Market’s rise as a dynamic hub for top-tier office space.
Office mandate: Elon Musk and Vivek Ramaswamy, leading a Trump-appointed task force, are advocating for federal employees to return to offices full-time.
Office uptick: Q3 office leasing activity grew across all regions, driven by demand for Class A buildings and large-block spaces, though sublease availability and negative net absorption remain.
Discounted deal: Savanna acquired the newly built Class A office property at 799 Broadway in Lower Manhattan for $255M at a "deep discount," with plans to lease the remaining 29% of space.

🏨 HOSPITALITY

Tax shock: Chicago hotel owners are protesting Cook County’s tax assessments, which have more than doubled since 2021, arguing the increases outpace the industry’s post-pandemic recovery.

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📈 CHART OF THE DAY

Urban retail is thriving post-pandemic, with a 180% YoY jump in transaction volume fueled by strong consumer spending, rising office attendance, and luxury brand expansions in prime US city corridors.