If there was a single message from this year's annual ULI Fall Meeting in Las Vegas, it's that increasing certainty among commercial real estate professionals over interest rates and other economic fundamentals isn't expected to solve lingering pandemic-related challenges, but will at least set the market's recovery in motion.
The national office vacancy rate is still stuck at historic highs and multifamily developers are contending with a glut of newly constructed units, but the United States Federal Reserve's recent rate drop — and the expectation of more cuts to come — has bolstered the notion that the market is entering a new, more stable cycle as it emerges from the depths of the COVID-19 outbreak.
“As we look ahead to 2025, we see a lot of green shoots on the horizon,” said Sara Queen, MetLife Investment Management's head of real estate equity, at the conference. “In general, we’re much more positive than we were, but there is a little bit of caution about what’s ahead over the next few months."
Some of those green shoots include investors gradually returning to capital markets after years of sitting on the sidelines, a shift many expect will add more certainty to property valuations and be the start of a domino line of future deals. Lower interest rates are largely expected to reduce borrowing costs, and while the market still has plenty of ground to make up to return to pre-pandemic levels of activity, the overall trajectory is moving in the right direction.
“We’re seeing the same positive trends,but I will say that it’s going to be choppy," Marcus & Millichap CEO Hessam Nadji said. "It seems like sentiment moves almost by the hour."