2024 Commercial Real Estate Outlook: Finding Terra Firma (Deloitte)

Summary

• Sixty percent of surveyed real estate firms expect declining revenues for the remainder of 2023, compared to 48% last year.p.6
• 40% of respondents plan to further reduce spending into 2024.p.6
• About half of respondents expect cost of capital (50%) and capital availability (49%) to worsen through 2024, up from 38% and 40% last year.p.4
• Property sales volumes dropped by 59% globally, 63% in the United States, 62% in Europe and 50% in Asia-Pacific so far through 2023.p.9
• Nearly US$900 billion in loans is set to mature over the next two years in the United States.p.9
• Global office vacancies topped 15.6%, while office property valuations slipped by 4.5% globally.p.13
• 61% of respondents admit their firms' core technology infrastructures still rely on legacy systems.p.4

Key insights

1. Revenue expectations dropped to their lowest level since the survey began in 2018.p.4
2. Respondents in Europe (66%), North America (60%) and Asia/Pacific (53%) were most likely to expect falling revenues.p.6
3. Cyber risk is the top-ranked threat to financial performance over the next 12 to 18 months, and rising interest rates jumped 10 spots to third.p.8
4. A net of 67% of bank lenders surveyed by the Federal Reserve in April 2023 were tightening lending standards for commercial mortgages.p.9
5. Digital economy properties, defined as data centers and cell towers, topped the list of most attractive risk-adjusted opportunities in all three regions.p.12
6. Rent growth in industrial properties was 18.6% in North America, 10.8% in Europe and 6.4% in Asia/Pacific year over year in mid-2023.p.14
7. In the United States, Grade A office space commands 31% higher annual rents, and the premium is 3% to 4% when adjusted for building age and location.p.18
8. Close to 76% of office supply in Europe could face obsolescence by the end of the decade if it is not upgraded.p.18
9. Nearly 60% of respondents say their firms lack the data, processes and internal controls necessary to meet ESG compliance standards.p.4