Commercial Market Snapshot Q2 2024


The severe contraction in the commercial real estate (CRE) market moderated this quarter. As of mid-May, transactions were on tempo to be close to first quarter levels for the four major asset groups, according to CoStar. This represented a 27% drop from a year ago, a vast improvement from the 50%-plus levels in 2023. CoStar data shows that cap rates have been flat this year so far. The pace of industry-wide price declines was steady for the last three months, around 10% annually.

The interest rate environment inhibited transaction activity in most sectors, despite favorable fundamentals. The swell of industrial deliveries that normalized vacancy and rental growth further abated, and demand for manufacturing sites was robust. According to the National Association of REALTORS®, more newly built apartments fostered higher vacancies* and overshadowed how unattractive mortgage rates cemented demand; there was a 141% surge in absorption in the first quarter. Retail transactions were partially deterred by a lack of inventory. Expanding retailers backfilled bankrupt storefronts rapidly and kept at a record 4.1%, per JLL. Office activity remained stilted, despite vacancy rates* hitting 13.7%. An all-time low in groundbreakings in Q1 2024 prompted some growth-minded tenants to lock in attractive lease terms, steadying rents. Moreover, the number of CMBS loans modified ballooned in 2023, alleviating pressure on distressed borrowers.

Indeed, distress and delinquency were not significant enough to move the market. First quarter delinquencies remained flat, according to the Mortgage Bankers Association. Distressed deals seesawed around 3.2% of transactions for the last few months.

With interest rates higher for longer, optimists foresee financiers finally revaluing their property portfolios and holdout sellers accepting price adjustment. Bisnow reports that private equity firms, notably Blackstone, are bullish on retail and multifamily. Pessimists note that a quickly recalibrating market could create an overwhelming amount of stress. Either way, as one real estate advisor recently stated, “So the world has to turn at some level, right? Transactions have to flow to some degree.”


Malls are in the latter part of the CRE cycle, an example that bears watching as the Office sector commences its own correction. Top tier properties are having a resurgence, as they add anchors such as pickleball courts and Netflix Houses; occupancy rates were about 95%. But only 60% of Class B and 33% of Class C mall CMBS loans are performing, which portends further rightsizing and transaction activity.

The regions in the U.S. are at different points in their adjustment. The Southeast, with its climbing population, has not had to demolish much space and is in a growth phase. Florida markets, such as Miami Lakes, are leading the expansion. The Southwest, primarily Texas markets, shed underperforming properties, and now enjoy a low vacancy rate and population growth. They could potentially support more development. The Northeast, Mid-Atlantic and West are in mid-course correction, building in stronger markets like eastern Pennsylvania and trimming older properties in southern California. Further pruning may be warranted in the Midwest. Despite having the highest vacancy rate, its markets have demolished the least space. Dayton, Ohio and Detroit, Michigan have the most mall square footage of delinquent loans and may offer opportunities for distressed transactions.

Chart showing Mall Inventory numbers for Q1 2024


Stay tuned for next month’s Economic Update Q2 2024 to see how the quarter ends.  


*Copyright© 2024 “April 2024 Commercial Market Insights Report.”  NATIONAL ASSOCIATION OF REALTORS®. All rights reserved. Reprinted with permission. June 2024, April 2024 Commercial Real Estate Market Insights (