Executive Summary

The North American real estate market is currently undergoing a significant transformation, which is characterized by a dynamic economic landscape replete with both challenges and opportunities for investors. This report provides an in-depth analysis of the complex interplay of factors that can impact the market in 2024 and offers a nuanced outlook to help investors navigate the North American property market this year:

1. Economic Assessment: We expect economic growth and inflation to moderate this year as household consumption, business spending, and inventory accumulation slow. There is still an elevated risk of recession in 2024 or early 2025. While headline inflation remains above the Federal Reserve’s (Fed’s) desired target, it will decline as the lagged impacts of housing inflation subside. Despite a weakening labor market outlook, some job categories will continue to experience modest wage growth and labor shortages. While the U.S. economy faces growth headwinds this year, we have identified two major secular themes—Artificial Intelligence (AI) and onshoring/nearshoring—that are still poised to shape the investment landscape.
2. Interest Rate Projections: Given our expected slowdown in economic growth, the decline in inflation, and the elevated likelihood of a recession, our analysis suggests that the Fed’s interest projections may be too high. We anticipate the possibility of 100 basis points of cuts in 2024 to early 2025 if a recession hits. Yet until rate cuts occur, we expect the 10-Year Treasury to remain close to 4%. The data and market suggest that the 10-Year Treasury rate will stabilize in the 3.00-3.50% range from 2025 to 2028. This outcome will have a lot to say about real estate valuations in the coming years. The Presidential election remains a risk to our forecast—if Trump is elected, it could result in higher inflation due to a universal tariff on all imports from China. This could delay a more aggressive series of rate cuts and add 1% to CPI.
3. Property Market Resilience: This year ushers in a new phase of the economic cycle. Despite various challenges, the underlying health of most property types (apart from office) remains resilient for many U.S. markets. The wave of new supply in the multifamily and industrial sectors peaked in 2023, and while it remains elevated in 2024, the lack of new starts recently will be a tailwind for fundamentals in 2025 and 2026.
4. Sector Growth Drivers: Advancements in technology are driving demand for additional warehouse space and non-traditional property types such as data centers and life sciences. The increasing demand for sophisticated computing capabilities and the exponential data growth have established data centers as critical infrastructure across industries. Despite some economic headwinds, the biotechnology industry will be a key industry over the next decade, and green shoots have been visible in the Venture Capital (VC)/Initial Public Offering (IPO) funding markets over the past few months. The demand for housing from demographic shifts, population growth, and migration continues to be an important driver for the housing sector. In addition, the enormous undersupply of single-family housing in many markets has led to strong performance in multifamily. In the office sector, we believe the decline in demand is nearing a bottom, given the growing number of employers calling for a return to the office. However, it may take several years to absorb the surplus inventory. Many of the older office buildings will need to be repurposed or demolished. Retail’s outlook has brightened as tenants navigate the impact of online sales and re-design their formats, and total space is closer to being right-sized. Consumer spending should continue to propel retail space demand particularly for those malls and necessity retail centers in strong trade areas.