arlau kaontun
Cushman & Wakefield said the combined impact of rising borrowing costs and persistent inflation creates a complex and complicated outlook for U.S. commercial real estate assets.NYSE:CWK) Mid-year macro outlook.
In addition to higher interest rates (which makes it more The commercial real estate market has been facing a sharp decline in occupancy rates and tighter lending standards due to the high cost of refinancing for borrowers) and headwinds from the Federal Reserve’s delay in cutting interest rates. This in turn leads to more commercial foreclosure and higher delinquency rate Commercial real estate loans. Office occupancy is particularly affected by the post-pandemic work-from-home trend.
“Cracks are forming beneath the surface as consumers and businesses remain under pressure from rising interest rates and the cumulative effects of inflation,” said Rebecca Rockey, deputy chief economist and head of global forecasts at Cushman & Wakefield.
In terms of office space, net absorption is expected to be negative in 2024 at -63 million square feet and -7 million square feet, respectively, the report said. Average annual demand is expected to reach 20 million to 25 million square feet by the end of the century.
“While office work will continue to grow, office demand is still adapting to hybrid work,” said David Smith, head of insights for the Americas at CWK. “We believe we are making progress in this process beyond what the weighted average lease terms would suggest, “About half of the space on the sublease market has a base expiration date of 2028 or longer.”
As a side note, Seeking Alpha’s quantitative system gives the Cousins property (NYSE:CUZ) has the highest rating among office REITs, followed by Kilroy Realty (NYSE:KRC), Urban Office Real Estate Investment Trust (NYSE: CIO), equity consortium (NYSE:EQC) and SL Green Realty (NYSE:SLG).
Meanwhile, demand for retail real estate continues to be strong, driven in part by strong store openings by large retailers. CWK noted that so far this year, about 850 more stores are planned to open than have closed. Additionally, new supply is insufficient, with less than 12 million square feet of retail space under construction and over 4.3B square feet of inventory. CWK does not expect new supply to reach the 2010-2019 average until 2020 at the earliest, suggesting that retail space will remain largely scarce.
“Retail real estate stands out with low vacancy rates, benefiting companies like Realty Income (NYSE:O) and Consent Estate (NYSE:ADC),” said SA writer Brad Thomas.
Other retail REITs: Kite Realty Group Trust (NYSE:KRG), Kimco Real Estate (NYSE:KIM), Getty Real Estate (NYSE: GTY), Simon Property Group (NYSE: SPG), Brixmor Property Group (NYSE: BRX), Arcadia Real Estate Trust (NYSE:AKR).
The outlook for industrial real estate, however, looks less promising. CWK said: “While e-commerce continues to rise as a share of retail sales, some pull effects (businesses expanding faster during the epidemic) will put pressure on the demand outlook in 2024 and the first half of 2025.” The report reads .
In fact, effective rent growth in major industrial markets has either peaked or has peaked, CompStak said in its first-quarter 2024 industrial market overview report. In another sign of the softening market, the average lease term for average large transactions in major markets fell by 12.9%. But despite slower growth for some tenants and large industrial tenants, e-commerce remains a high share of total retail sales and is a strong driver of industrial demand.
Industrial REIT: Bucks Industrial (NYSE: STAG), innovative industrial real estate (NYSE: IIPR), land real estate (NYSE: TRNO), Rexford Industrial Properties (NYSE: REXR), GLP (NYSE:PLD).
