2024 CRE Market Recap & 2025 Forecast: Brace for Impact with Rising Treasuries!

🌟 2024 CRE Market Recap & 2025 Forecast: Brace for Impact with Rising Treasuries! 📈🏢

The Green Street Cap Rate Observer for December 2024 paints a dynamic yet challenging picture for commercial real estate (CRE) investors. Here’s a recap of where we stand and predictions for 2025:

📊 2024 Recap Highlights:
• Cap Rate Trends:
• Average B/B+ cap rates remained steady despite a 60+ bps rise in 10-Year Treasuries (4.52%).
• Senior Housing: NOI growth pushed values higher, with a 12% YoY increase in valuations.
• Strip Centers: Declined modestly but showed resilience with 40 bps compression in secondary/tertiary markets.
• Apartments: Cap rates fell by 45 bps this year, driven by a 9% clawback in asset values.
• Sector Winners & Losers:
• Winners: Data Centers, Senior Housing, Strip Centers—showing the strongest value recoveries.
• Losers: Office values stuck at 55% below ’22 peak levels, while Industrial cap rates widened 70 bps.
• REIT Performance: Real estate values are 21% below 2022 peaks, but private-market values still trade above public benchmarks.

🚨 Predictions for 2025: A Rising Storm?

With the 10-Year Treasury possibly hitting 5%+ in 2025, here’s what to watch:
• Cap Rate Compression Ends: Higher borrowing costs could add 50-100 bps to cap rates, especially in riskier sectors like office and industrial.
• Value Adjustments: Expect 10%-15% further declines in high-leverage sectors such as lodging and single-family rentals.
• Sector-Specific Forecasts:
• Apartments: Continued recovery in coastal submarkets like Tampa and Chicago but may plateau under higher financing costs.
• Senior Housing: High potential to outperform with robust rental and occupancy growth.
• Strip Centers: Secondary market strength continues, but yields will tighten.

🔥 Key Stats & Risks
• 21% Drop: CRE values remain below peak, signaling possible corrections if Treasuries climb.
• 5.3%-6.5% Cap Rates: Self-storage & multifamily rent pressure could remain in this range.
• 55% Drop: Office sector values struggle to gain traction; potential red flag in 2025.

🌐 Investor Takeaways:
• Prepare for Tightening Liquidity: Higher Treasury rates will test leverage-heavy markets.
• Sector Rotation is Key: Focus on data centers, senior housing, and strip centers for stronger returns.
• Be Cautious of Debt-Heavy Sectors: Lodging and single-family rentals may feel the squeeze hardest.

✨ Ventura Insights from the Ventura Partners Wealth Hub ✨
www.marketwatch.com/story/commercial-rea...in-15-years-2e954fd1