2024 Economic Outlook and Commercial Real Estate Predictions

After a prolonged period of economic uncertainty, there is a notable shift in the sentiment of Americans towards inflation and the overall economy. This positive trend has the potential to drive consumer spending, stimulate economic growth, and even impact the political landscape for President Joe Biden.

In a survey conducted in mid-January 2024, it was found that the optimism about personal finances in the coming year has reached its highest level since June 2021. This optimism is attributed to a combination of factors, including a steady decline in inflation rates, increased incomes, lower gas prices, and a thriving stock market. Inflation, which peaked around 9% in June 2022, has now receded to 3.4%, meeting the Federal Reserve's annual 2% target over the past six months. Importantly, paychecks have outpaced inflation, easing the burden of a higher cost of living for Americans.

Despite this positive trajectory, prices still remain nearly 17% higher than three years ago, indicating a lingering impact of past inflation. The rapid decline in inflation, coupled with a persistent high cost of living, poses a question in the minds of voters who are grappling with the financial and psychological aftermath of the most significant inflation in four decades.

On the employment front, hiring has remained robust, with the unemployment rate staying below 4% for nearly two years. The prevailing perception is that the economy is continuously improving. However, an economist warns that political factors may limit the extent to which public sentiment can improve. Economic outlooks are increasingly influenced by political partisanship rather than the economy's underlying performance, and this trend may intensify as the presidential election approaches.

Looking ahead to the summer of 2024, the Federal Reserve is expected to initiate rate reductions. Lower rates will be justified by decreasing inflation, a substantial increase in the national debt, and a boom in commercial real estate activities due to the presidential election. This is anticipated to result in heightened commercial real estate sales, financings, and leases. The lending sector is poised to experience increased loan and deal volumes as interest rates decrease, leading to higher rents and occupancy in key markets. However, urban markets facing challenges such as high crime and homelessness may continue to struggle.

For investors, diversifying portfolios with commercial real estate assets in high-growth, low-tax states is predicted to outperform those in high-tax, high-crime states. Distressed and vacant office buildings in certain urban markets may trade at a significant discount, providing opportunities for strategic investments.

In summary, commercial real estate is expected to experience a substantial boom in sales and financing volumes in 2024, building on the momentum from the previous year.

By Shelly Branscom, CCIM