Why we expect a price recovery in commercial real estate

Key takeaways

Chain reaction

Lower interest rates should help lower real estate debt costs and start a chain reaction for a recovery in prices.

Lower borrowing costs

Lower interest rates should, in turn, reduce cap rates, which should result in higher real estate prices.

Future rent growth

Improved tenant confidence and a sharp reduction in new supply should drive rent growth starting next year.

While 2023 was challenging for US commercial real estate (CRE) investors, we believe that it’s “off the floor in 2024,” with real estate poised to start its price recovery sometime in the second half of the year. Think of it as a chain reaction, which starts with fed fund rate reductions. That should help to lower real estate debt costs, which should, in turn, reduce upward pressure on cap rates. An eventual lift in cap rates should drive higher real estate prices.