Real Estate Pulse - Q1 2025
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A Positive Cycle Takes Hold
Performance results for US Commercial Real Estate (CRE) in the final quarter of 2024 confirm a cycle inflection to positive returns in the second half of the year. The NCREIF Expanded National Property Index posted positive total returns in both the third and fourth quarters of 2024 after negatives starting in the fourth quarter 2022. Over the four quarters of 2024, total return amounted to 0.6% with capital appreciation at -4.0% offset by income return. The erosion of capital diminished over the course of the year from -1.40% in the first quarter to -0.24% in the fourth quarter.
Additional highlights
- The volume of CRE transactions continued to inch up in the fourth quarter of 2024 following advances in the two prior quarters. Volume for the quarter was 32% above the fourth quarter of 2023, bringing the full year 2024 volume to 9% above 2023.
- Property pricing improved slightly over 2024 according to the MSCI-Real Capital Analytics Commercial Property Price Indexes. For the year, commercial property prices inched up 0.2% while apartment pricing declined -4.2%. Retail property showed the strongest 2024 increase at 3.2% followed by industrial at 2.7%.
- NCREIF NPI total return rebounded to positive territory for the third and fourth quarters of 2024 and boosted full year 2024 total return to a positive 0.6% as well.
- The upticks in industrial, residential, and retail sector NOI growth affirm the turn in the US CRE cycle. Both industrial and residential sectors produced hearty construction pipelines in response to the COVID-related zero interest rate policy along with that period’s boost in demand for warehouse space and apartment rentals.
- For the top 50 metro areas, apartment vacancy rates improved in 21 of the 50 between the third and fourth quarters of 2024.The majority of the 50 metros also saw falling rents year-over-year in the fourth quarters. In general, these readings were roughly in line with year-over-year changes in the third quarter.
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