Seyfarth’s 2024 Real Estate Market Sentiment Survey Sees Greater Opportunity in 2024 Amid a More Favorable Interest Rate Outlook

February 26, 2024 - Seyfarth Shaw LLP has released the findings of its 9^th Annual Real Estate Market Sentiment Survey which brings to light what commercial real estate (CRE) executives see as their top concerns, investment priorities, and key catalysts for change. Seyfarth’s 2024 Survey examines the industry’s current market sentiment as the economy shifts, new workplace norms settle in, and a major election is on the horizon. A copy of the full survey is available here.

“We are excited to share the results of Seyfarth’s annual Real Estate Market Sentiment Survey for 2024,” said Paul Mattingly, national chair of Seyfarth’s Real Estate department. “While we are cognizant of the challenges still facing the real estate market, we share the increased optimism of the executives who responded to our survey.”

This year’s survey reveals the optimistic view for the year ahead that the commercial real estate (CRE) industry holds with expectations pointing toward a more favorable interest rate environment in 2024 and substantial amounts of capital poised on the sidelines ready to invest.

Nonetheless, CRE executives are navigating a delicate balance between hope and caution, mindful of impacts stemming from persistent scarcity in debt financing, the looming specter of an economic slowdown, new workplace norms, and a lack of consensus in real estate valuations.

The Seyfarth survey also indicates that investment in distressed assets will be a focus and that office to residential conversions will not have the impact some have predicted.

Among many key findings in Seyfarth’s 9th annual Real Estate Market Sentiment Survey are the following:

Promising Possibilities: After a challenging 2023, 83 percent of CRE executives surveyed have a buoyant outlook for the sector in 2024. This prevailing optimism is underpinned by various factors, including anticipated interest rate reductions by the Federal Reserve, indications of a deceleration in inflationary pressures, promising trends in GDP growth and employment figures, the prospect of investing in distressed assets, and the impending national election.

Reckoning with Rates: Despite the Federal Reserve’s indication that there will be three rate cuts in 2024, CRE executives remain cautious regarding the extent of those cuts. Only 23 percent of respondents believe the Fed will decrease interest rates by more than 50 basis points. At the same time, 70 percent of respondents believe that interest rate cuts will need to exceed 50 basis points to activate investor engagement. The results indicate that CRE executives desire greater decreases than they are expecting.

AI Ambivalence: Respondents were split down the middle when it came to whether or not artificial intelligence would play a role in their investment activity and operations in 2024. Given generative AI’s recent surge in popularity, despite 50 percent of respondents still being on the fence, it seems that a growing segment of the industry is embracing this ever-evolving technology and will continue to do so.

Money Matters: No factor matters more to executives considering the acquisition of real estate assets than pricing—and by a considerable margin. More than three-quarters of respondents say that pricing is a threshold condition to an active acquisition market. Stable pricing means sellers and buyers will have a base from which to negotiate a transaction; without it, buyers cannot buy and lenders cannot finance.

Dabbling in Distress: 74 percent of respondents plan to invest in distressed assets in 2024, with an allocation of between 11-25 percent being the most popular category, followed closely by an allocation of up to 10 percent. While 26 percent of respondents won’t allocate any investment to distressed assets, a minority of 9 percent plan to invest more than half of their portfolios.

Reconciled to Remote Work: As hybrid and work-from home schedules have become normalized, industry leaders are less concerned about a negative impact on their companies’ performance. Well over half now say that the new workplace model has not adversely impacted either their company’s profitability or employee loyalty, and there is a more evenly split view on the impact to company culture compared to responses in 2023. Although they are more accepting of the remote work concept, a majority of the respondents themselves expect to be in the office 4-5 days per week.

Tentative Trend: Despite headlines touting office to residential or mixed-use conversions as a panacea for stagnating central business districts, market participants remain hesitant, with 61 percent indicating that they are not likely to invest in conversion projects in 2024. Nevertheless, 10 percent of respondents are likely or very likely to invest in these projects, and the rest have some interest. Given growing investor interest, incentives provided by various levels of government, and the housing crisis, this is likely to be an area worthy of continued attention.

Cardinal Concerns: Apprehension over interest rates topped the list of concerns as expected, followed by scarcity of debt financing. Although there is a dramatic decrease in the number of respondents worried about a recession compared to 2023, the fact that more than a third of CRE executives still believe that economic recession is a top three concern for the industry demonstrates that many do not believe a soft landing for the economy has been executed.

Seyfarth’s Real Estate department, recognized as one of the largest real estate practices in the US, surveyed commercial real estate executives in January 2024.

About Seyfarth

With more than 900 lawyers across 18 offices, Seyfarth Shaw LLP provides top tier advisory, litigation, and transactional legal services to clients worldwide.

Contact: Tom Mariam, Director of Public Relations: 212-218-3366 or tmariam@seyfarth.com