US Real Estate Market in Review 2024: Challenges and Opportunities

The continuing high interest rates have arguably been the biggest factor in the challenges faced by the US real estate market, having heavily contributed to the general cooling in the volume of real estate transactions and has presenting challenges to developers and lenders alike.

The increase has “signalled a shift from the prolonged low-rate environment,” which has been particularly challenging as loans expire and need refinancing under more hostile market conditions. For example, many developers have had to limit, pause and even abandon their real estate projects. Similarly, housing affordability is a major challenge to many clients as mortgages have become increasingly expensive due to high interest rates.

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The pandemic has caused a seemingly permanent shift in working patterns which deemphazises office space in its purest form and turns to a more flexible approach. Employers and employees alike are trying to balance the need for some form of physical office space with working-from-home expectations and the high cost of real estate transactions.

Besides the general increase in vacancies and decline in value of office properties, developers and landlords are adapting as they look to integrate retail, residential and leisure spaces into the physical working environment. This includes restaurants, gyms and apartments. These innovative approaches to traditional real estate assets have provided opportunities to many market players and cities are transforming as this trend continues to manifest.

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One area that has shown some positive signs is the US rental market. The high interest rates has meant home ownership for many young people is not currently possible, which has strongly supported this area of the market. Market commentators, across the South in particular, have commented on the emergence of the build-to-rent market as being another aspect of the strength of the rental market more broadly in 2024.

The second half of 2024 is not expected to be a record-breaking year by any means. Commercial real estate continues to be on the brink of a possible disaster, particularly regarding CRE loans, and a materialisation of threatened defaults could be catastrophic for the real estate market specifically and the economy more widely.

However, there is a general appetite for deals and widespread cautious optimism as the market continues to be reshaped. If the Federal Reserve deems it fit to lower interest rates and the wider economy recovers, then financings will likely increase in activity and the market will see some more encouragement. As one lawyer described, “everyone is waiting for this.”

In some instances, there have already been positive signs, with retail, hospitality and sports arenas showing some steadiness amid the turbulence felt elsewhere.

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