Commercial Market Trends Q2 2024

by Scott Lyons

View of a two-story campus expansion with outdoor terrace and elevated walkway.

Overall, the outlook for commercial real estate (CRE) continues to be muted this year in terms of launching new projects as investors work through continued headwinds.

All signs point to few, if any, interest rate reductions this year, 10-year treasury yields remaining high, and lenders are not yet ready to loosen their requirements. Generally, CRE investors continue to subscribe to the mantra of “Stay Alive Until ‘25”. Aside from the headwinds, we have the strongest economy in the world, and there’s reason to be optimistic that CRE will pick up steam towards the end of 2024 and into 2025.

In the meantime, the smart money is focusing on two important areas:

  • Many developers are diversifying their portfolios and investing in opportunities outside of their traditional project types, such as in industrial, manufacturing, data centers, student housing and life science projects. The rush to data center development is frankly staggering and reminiscent of the rush to develop life science space during the early part of the pandemic.
  • Secondly, owners and developers who have kept their powder dry are viewing 2024 and 2025 as the best opportunity to purchase bargain real estate since the early 1990’s as the market resets.

Here are the building trends we are seeing today:

Market Trend

Office/Adaptive Reuse

According to CBRE, office vacancy rates are the highest in decades, with an anticipated peak at 19.8% by the end of 2024. Despite the headwinds for office, office is not obsolete. Highly amenitized, environmentally friendly Class A trophy properties are continuing to command very attractive rents across major markets (aka, the ‘Flight to Quality’). CBRE is forecasting that office construction has already slowed to the lowest level since 2014 thereby raising the prospect of a shortage of available Class-A space next year and beyond.

The mindset of occupants and the firms they work for has also evolved. Workers are subscribing to the concept of the 20-minute city; smaller, more accessible areas where you can access everything you need to live, work, and play within a 20-minute walk, bike or commuter ride. Developers are taking note by refreshing their master plans and adopting to these live-work-play community designs that can thrive both within an urban core or a suburban setting.

When you evolve master plans to accommodate a live-work-play environment in existing urban cores, you’ll likely need to tackle the challenge of converting or demolishing underutilized Class B and C office whose valuations are declining rapidly. Generally three options are available: 1) The building can be demolished to make way for green space or new ground up. 2) The building can be modestly improved to try to maintain a reasonable tenant base. 3) Convert the building (adaptive reuse) from office to hotel, a multifamily space or even to a data center to name a few

Government subsidies will also play an important role to make conversion projects financially feasible. These transformations will take years if not decades to achieve but the good news is that corporate America is starting to understand that embracing sustainable designs and live work play concepts is a step in the right direction.

Market Trend


New hotel construction is steadily on the rise in the U.S. with a projected opening of 677 new hotels this year and another 799 new hotels in 2025. This trend is expected to increase over the next 2 years as business and leisure travel has bounced back to pre-pandemic levels. The majority of the new construction is business class hotels; however, we are also seeing some striking, highly amenitized sustainable designs for four and five-star hotel projects around the U.S..

The focus of hotel design in 2024 continues to include vibrant common area environments, multiple food and beverage options, sustainable designs, smart energy strategies, and waste reduction strategies to the more environmentally conscious and provide long-term cost-savings in operations. As builders, we are partnering in a more meaningful way to bring the best solutions to hotel developers and investors for years to come.

Report pages

Looking for more general market insights? Take a look at our full market conditions report of Q2 2024. Or take the full report with you by downloading the PDF.

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