As we charge ahead into the new year, we are thrilled to unveil our 2024 Powerhouse Poll, where our investment sales advisors and mortgage bankers share their expert perspectives on the state of the commercial real estate (CRE) market. This year, we are witnessing a shift in priorities, creating a unique opportunity for investors to capitalize on the changing market trends. By tapping into our teams’ insights and predictions, we challenge our clients to align their investment priorities for the year ahead, empowering them to make confident and strategic decisions.
Emerging Strength in the Era of Economic Fluctuations
As with any other industry, the commercial real estate (CRE) sector is subjected by various external factors. There are ongoing concerns about an economic downturn, inflation, and higher interest rates for longer that continue to persist. Out of the three factors referenced, the majority of Berkadians (92%) agree that higher interest rates will play the largest role in impacting investment transaction activity in the year to come. While external factors are certainly a factor, Berkadians still projected feelings of desirability and resilience for the multifamily sector year-over-year.
Last year, Berkadians predicted a significant increase in apartment supply across various regions, which in turn offset demand. This year, when it came to apartment supply outpacing renter demand, 46 percent of Berkadians said they think new apartment supply will outpace renter demand, 41 percent said they do not believe new apartment supply will outpace renter demand, and the other 13 percent said they weren’t quite sure.
These mixed attitudes vary by geography. For example, many advisors covering the Sunbelt markets are feeling the deluge of apartment supply and downward pressure on rents while advisors in the Midwest and Northeast are seeing positive absorption and rent growth in many cases. While multifamily fundamentals may be cooling off in many markets across the U.S., we are encouraged by investors’ positive sentiment to pursue opportunities, both equity and debt.
To effectively capitalize on opportunities in 2024, it is important to understand notable hotspots from our poll. Included below are locations, demographics, assets, and more, that are gaining interest and momentum as we head into the new year:
- Hottest Renters: Over half (58%) of Berkadians reported that the most active renters in their regions are Millennials, followed by a rising number of Gen Z renters (30%).
- Hottest Location: Over half (51%) of Berkadians chose “Primary Suburban” as their first choice when ranking the locations most attractive to investors today.
- Hottest Institutional Investment Strategy: 44 percent of Berkadians ranked distressed opportunities as their first choice when asked what type of investment strategies will interest institutional investors most in 2024. Additionally, an overwhelming 98 percent of Berkadians said they expect to see an increase in distressed opportunities in 2024 (distress includes acquiring non-performing mortgage loans and acquiring assets at steep discounts).
- Hottest Property Sector: 40 percent of Berkadians choose single-family rental and build-to-rent as the property sector that will be most attractive to in 2024.
Tech Talk: The Artificial Frontier
As digital tools continue to advance at an impressive rate, they are also becoming more integrated with the CRE industry. Nearly half of the Berkadians surveyed (48%) said that new technology tools helped to expedite the production process.
When it came to using Generative AI (ChatGPT or similar products), Berkadians seem to use it in varied amounts across several daily use cases to improve client insights and activity. Over half (64%) of Berkadians agreed that Generative AI has had an impact on the production process. As for use cases, Berkadians’ top three use cases for Generative AI were ranked in the following order: creation of marketing materials (29%), gleaning insights related to regional market data (25%), and summarizing industry trends, research, and data (24%).
These findings from the 2024 Powerhouse Poll have revealed potential opportunities for investors and have provided valuable insights that will help them to navigate the ever-changing CRE landscape in the year ahead. As the market gradually becomes more stable, we remain cautiously optimistic and look forward to arming our clients with actionable information to make informed real estate decisions in 2024.
To see additional perspectives and expectations from Berkadia’s producers, check out the full report here.