The commercial real estate outlook for the remainder of the year 2024 appears to be moving in a positive direction thanks to the success that is being seen in the multifamily, retail, and industrial markets. However, there are challenges that could lie ahead such as the high interest rate that appears to be staying for some time as well as vacancies in office space continuing to increase.

As we move into the second half of the year, key trends include enhanced fraud protections, innovative financing strategies for workforce housing, and optimizing liquidity for future opportunities—and there will be opportunities. With this in mind, commercial real estate investors can manage liquidity for the near future, safeguard against fraud, and increase workforce housing supply.

Everyone within commercial real estate is eager for interest rate relief on loans. Lower interest rates on loans also mean lower returns on liquidity. Right now is a great time for investors to save their liquidity for future opportunities and take advantage of treasury services and rent payment solutions to optimize their cash.

Fraudulent activity continues to increase, posing a threat to all. According to the 2023 AFP Payments Fraud and Control Survey Report, 65% of organizations reported being victims of actual or attempted payments fraud activity in 2022. There are some types of fraud that don’t pose much of a threat to commercial real estate owners. However, they are susceptible to fraud such as check fraud and rent payment fraud. It’s important for commercial real estate owners to safeguard themselves against fraud by training themselves and their teams on the best ways to spot and prevent fraud and cyberattacks.

J.P.Morgan’s workforce housing solutions team is adopting a novel strategy to boost the supply of workforce housing. Rather than relying solely on area median income cutoffs and low-income housing tax credit financing, they are ensuring that rents for restricted units are substantially lower than those of unrestricted market units. "This approach creates new housing with rents that are affordable to households across a broader income spectrum compared to traditional affordable or market-rate housing," explained Lionel Lynch, the head of the group.

Additionally, there are macroeconomic factors that are having an influence on the commercial real estate industry. Higher and longer lasting interest rates, ongoing global conflicts, and upcoming presidential elections could all have an impact on the economy thus impacting the industry as well. The Federal Reserve has made it clear that they will do whatever is needed to bring down inflation which means that interest rates are likely to stay at their present rate.

There are present ongoing conflicts around the globe such as the current wars in Ukraine and the Middle East. These occurrences frequently appear as fluctuations in the market and can also influence the global supply chain. Another upcoming event is the upcoming presidential elections which could have quite an impact on the economy. The presidential election could affect consumer confidence and spending, which contributes to ongoing high interest rates. However, the U.S. isn’t the only country with elections ahead. According to Canalog, “With over 70 countries holding elections in 2024-the highest number in history-geopolitical uncertainty around the world is likely to remain high through the year.” This is quite significant as there is currently much political uncertainty that can potentially have a great impact on the economy and also the real estate industry.

Going into the second half of 2024, it’s crucial for investors to understand the various asset classes in commercial real estate to be able to identify the best opportunity for investment. Office space appears to be the most uncertain asset class with vacancy rates continuing to rise. Vacancy rates rose to 19.6% in Q4 2023, breaking the previous record of 19.3%. According to Moody’s Analytics CRE, the 0.3% surge is also the largest quarterly increase since Q1 2021. While offices aren’t the most desirable, it’s unclear how far demand will drop or how high vacancies will rise.

The multifamily asset class remains strong and of high demand. There is constantly the need for affordable housing and multifamily is often the best place to get that. Luxury properties had a notably higher vacancy rate than B and C class properties resulting in many property managers making concessions in places where obtaining building permits is easier.

Retail continues to perform well, especially grocery neighborhood shopping centers in dense populated areas. In addition, many major retailers are opening smaller stores allowing big retail properties to “have owners and operators who are flexible and willing to adapt to what their most important tenants need” according to Calanog. With retail and e-commerce sales increasing and becoming more successful, industrial properties are increasing in demand.

As we approach the halfway point of the year and are entering prime leasing season for some asset classes, there are countless opportunities for investors looking to score a big investment but it will be crucial for them to understand the industry to secure the best deal possible.