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  • Writer's pictureRealFacts Editorial Team

What's Changed in CRE Sales Trends


Commercial real estate area

The commercial real estate (CRE) landscape in May 2024 has shown some encouraging trends, providing a glimmer of hope for property owners and investors navigating an ever-evolving market. According to Crexi's National Commercial Real Estate Report, several key metrics—including prices per square foot, cap rates, and occupancies—saw notable shifts, signaling potential opportunities and challenges ahead.


Rising Prices and Cap Rate Compression


One of the most striking findings from Crexi's report is the 3.76% increase in the asking price per square foot across the marketplace. This uptick is accompanied by compression in cap rates, which have narrowed from 6.82% to 6.6%. On the surface, these trends suggest a healthier market, but there are underlying nuances. While higher asking rents are a positive sign, they do not necessarily reflect the actual rent tenants pay. Lease negotiations often result in lower final numbers, with landlords potentially offering concessions to secure tenant commitments, ultimately reducing net rent over the lease term.


Sector-Specific Trends


The report highlights varying percentage growths across different asset types, with retail leading the charge at 7.33%, followed by office at 4.41%, multifamily at 3.69%, and hospitality at 3.06%. Interestingly, the industrial sector saw a decline of 1.26%.


Retail


Retail's strong performance may be somewhat overstated due to a reduction in supply and slowed development. As the available space diminishes, prices naturally rise, but this trend is likely to reverse once supply catches up with demand. Additionally, the current macroeconomic environment limits how much tenants can afford, potentially capping future rent increases.


Office


The office sector shows promising signs, driven by positive job reports and increased office visits. Placer.ai data indicates an 8.6% year-over-year rise in office foot traffic in May 2024, particularly in high-density markets with newer, amenity-rich buildings. This uptick suggests a potential tailwind for office leasing, although the market remains cautious.


Multifamily


Multifamily properties have maintained steady pricing over two consecutive quarters, even amidst ongoing inflation and high interest rates. This asset type continues to be a viable alternative for individuals priced out of the housing market, bolstering its position in the CRE landscape.


Industrial


The industrial sector's decline in asking rates reflects a temporary adjustment period. Despite recent supply surges due to the e-commerce boom, demand for industrial and warehouse space remains robust. Crexi predicts that as more space is absorbed, industrial asking rates will stabilize and eventually increase again.


Occupancy Rates and NOI


Occupancy rates rose by nearly 3% in May 2024, a promising indicator for landlords' prospective net operating income (NOI). Higher occupancies, combined with rising rents, enhance property valuations and facilitate smoother financing processes. This trend underscores the resilience of the CRE market despite economic uncertainties.


Geographic Insights


The report also provides a snapshot of per-square-foot asking prices for property sales across major U.S. cities. Notably, Miami saw a staggering 46.77% increase, reaching $528.49 per square foot. San Francisco and Houston also posted significant gains at 37.59% and 34.90%, respectively. Other cities like New York City, San Diego, Los Angeles, and Austin recorded healthy growth, reflecting diverse regional dynamics.

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