A quote attributed to various prominent figures, including the baseball player Yogi Berra and physicist Niels Bohr, states, “It is difficult to make predictions, especially about the future.” As 2023 draws to a close and we consider the upcoming year, it’s impossible to say what exactly lies in store for commercial real estate.
However, it’s possible to make educated guesses about notable developments during the year ahead. Here are a few key commercial real estate trends to watch in 2024 based on insights from industry experts.
1. The continued rise of artificial intelligence will reshape the commercial real estate industry.
The growing popularity of consumer-accessible generative AI offerings like ChatGPT from OpenAI and Bard from Google has already impacted the real estate space and will likely continue to reshape the industry in multiple ways in 2024, according to the Emerging Trends in Real Estate® United States and Canada 2024 report from the Urban Land Institute (ULI).
“AI’s impact on employment is multifaceted, with the potential to boost productivity, create jobs, and spur economic growth, while also raising concerns about job displacement in white-collar roles,” the ULI website states. “AI firms are driving demand for innovative office spaces in tech hubs, underlining the dynamic interplay between AI and the real estate sector.”
2. Hybrid work is here to stay.
Almost everyone interviewed for the ULI’s 2024 Emerging Trends project declared something along the lines of “hybrid has won,” according to the report. As of summer 2023, nearly half of U.S. employees reported either hybrid or fully remote working arrangements. In Q3 2023, the national office vacancy rate climbed to 19.2 percent, according to Moody’s Analytics.
Reduced demand in the office market compared to pre-2020 levels will likely continue next year. However, the ULI report notes that an economic downturn could change that by altering the balance of power between workers and business leaders and fueling mandates to return to the office.
3. Sustainability will be a top priority for commercial property managers and owners.
With 2023 shaping up to be one of the hottest years in history and the rate of natural disasters that cost $1 billion or more increasing, sustainability has become a necessity for property investors, owners and managers, according to the PwC Emerging Trends in Real Estate 2024 report.
Local governments have established new environmental, social and government (ESG) regulations, creating new compliance requirements. Some cities now mandate routine energy audits. In 2024, that means owners and investors will increasingly focus on energy-efficient building design, decarbonization, indoor environmental improvement, and other green initiatives.
The Avalon Realty Associates team has experience designing energy-efficient buildings. Visit our Client Services page for more information.
4. Neighborhood shopping centers will succeed despite e-commerce growth.
While e-commerce continues to grow in popularity, it still only accounts for 15 percent of all retail sales, and brick-and-mortar neighborhood shopping centers in densely populated locations are expected to enjoy success in the upcoming year, according to the 2024 commercial real estate outlook from Al Brooks, head of JPMorgan Chase Commercial Real Estate.
“Retail will emerge as the stalwart in 2024,” Moody’s Analytics Senior Economist Ermengarde Jabir said, according to Brooks’ outlook. “The asset class is expected to experience steady performance, with unchanging vacancy rates and moderately positive rent growth for neighborhood and community shopping centers.”
5. Digital economy assets will be popular with commercial real estate investors.
The 2024 commercial real estate outlook from Deloitte, which is based on a survey of real estate owners and investors in North America, Europe, and Asia/Pacific, found that respondents worldwide identified digital economy (cell towers and data centers) as the most attractive asset category in terms of risk-adjusted opportunity in the near future (12 to 18 months). Hyperscale computing has boosted demand for data center space.
If you’re interested in learning more about the state of the commercial real estate market in Chicago and nationwide, don’t hesitate to contact the Avalon Realty Associates team by calling 847-506-1000 or emailing info@avalonreal.com. You can also connect with us via our Contact Us page and view property listings online.