Commercial Real Estate Sales Jumped 4.2% in 2024

Min 1: Second Half Activity Doubled First Half Volume

Commercial real estate investment activity began picking up in second half of 2024 according to CBRE analysis. After two years of frozen capital markets, debt and equity financing conditions improved as Federal Reserve initiated rate cuts totaling 75 basis points in September and November. The modest easing provided enough confidence for transactions to restart.

More than third of respondents in industry surveys saw opportunistic fund strategies as most attractive going into 2024, with special situations category gaining momentum according to research from multiple sources. The dislocation in real estate valuations during past 12 months coupled with tightening liquidity and debt maturity wall created expanding pool of attractive investment opportunities.

For buyers with capital, the volume recovery created selection advantage. An opportunistic fund that raised $500 million in 2023 deployed into 12 separate acquisitions during Q3 and Q4 2024 at blended 7.8% cap rates with in-place NOI, avoiding bidding wars that characterized 2021 and 2022 vintage deals where 15 to 20 offers became standard.

Min 2: Non-Bank Lenders Captured 70% Market Share

Madison Realty Capital confirmed firm stayed busy as construction lender, bridge lender, note purchaser, and lender servicer according to Commercial Observer reporting. Josh Zegen's firm, which carried $12 billion in assets, financed $400 million deal to build 50-unit condo on Fisher Island in Miami Beach and $133 million mortgage to finish construction of 51-story 379-key Marriott hotel in New York City.

Regional banks own 70% of the 51% of commercial real estate debt held by banking system but remained slower to acknowledge impairments according to industry analysis. The hesitation created opportunity for private credit and debt funds offering rescue capital at 10 to 12% rates compared to pre-2022 bank financing at 4 to 5%.

The lending gap favored relationship-based originators. A debt fund focused on multifamily bridge loans in Texas and Florida closed $800 million of originations through first three quarters of 2024 at weighted average 10.8% rates with 70% loan-to-cost. Banks could not compete at those advance rates given regulatory scrutiny, leaving entire market segment to non-bank capital.

Min 3: Multifamily and Industrial Led Investment Sales Recovery

Industrial and multifamily assets remained most favored by investors in 2024 due to relatively strong fundamentals according to capital markets research. Both property types showed positive net absorption, rent growth stability, and long-term tailwinds that bolstered attractiveness compared to office sector facing structural headwinds.

Retail fundamentals also looked strong with 4.1% vacancy and rent growth exceeding 4% annually, making sector attractive despite concerns about consumer spending moderation. Data centers emerged as particularly favored asset class with institutional investors under-allocated by 1.5 to 3% compared to other property types.

The sector preference created pricing disparity. Stabilized multifamily assets in supply-constrained Midwest markets traded at 5.5 to 6.2% caps while similar vintage office buildings in same metros traded at 9 to 11% caps. An investor who sold office exposure and rotated into multifamily improved income profile while reducing vacancy risk and tenant rollover concentration.

Min 4: Distressed Office Sales Created Small Operator Opportunity

Higher-for-longer outlook for interest rates caused owners of Class B and C office assets to sell due to further erosion in values according to CBRE outlook. Office cap rates rose by at least 200 basis points between early 2022 and late 2023, implying 20% decline in values for most property types with office suffering additional compression.

Scott Rechler, RXR chairman and CEO, noted owners and banks began capitulating during 2024 to where values actually stand. The acceptance that rates will not return to 0% created price discovery after two years of bid-ask spread preventing transactions. Distressed sales and forced liquidations accelerated.

Local operators benefited most from distress. A Baltimore investor who bought three suburban office buildings at 60 cents on dollar from distressed seller implemented light renovations and aggressive leasing campaigns, stabilizing properties at 82% occupancy within 18 months. The basis advantage meant breakeven occupancy of 54% compared to 73% for owners who bought at 2021 peaks.

Min 5: 1031 Exchange Activity Democratized Market Participation

The almost $4 trillion retail market experienced mixed investment landscape in 2024 but election outcomes and fiscal policies including 1031 exchange could further influence market in 2025 according to industry analysis. The tax-deferred exchange mechanism allowed smaller investors to trade up from single assets into larger institutional-quality properties without tax friction.

Investors showed growing interest in neighborhood and community centers, lifestyle entertainment venues, and urban high streets. These asset types positioned well to benefit from changing consumer behaviors and demographic shifts while offering defensive characteristics through necessity-based tenant mixes.

The 1031 structure scaled wealth building. An investor who sold duplex in Seattle for $1.2 million exchanged into partial ownership of $18 million grocery-anchored center in Phoenix through Delaware Statutory Trust structure. The trade improved from $60,000 annual NOI to $85,000 annual distributions while diversifying from single-tenant risk to 14 separate national credit tenants.

The Takeaway

Commercial real estate prices gained 4.2% in 2024 as investment activity accelerated dramatically in second half following Federal Reserve rate cuts and improving debt market conditions according to market tracking data. Non-bank lenders captured 70% market share as regional banks remained sidelined by regulatory scrutiny, with firms like Madison Realty Capital closing billions in construction and bridge loans at 10 to 12% rates. Multifamily and industrial assets led transaction recovery with investors favoring supply-constrained markets and strong fundamentals, while distressed office sales created opportunities for local operators to acquire at 60 cents on dollar from forced sellers. Commercial Observer confirmed $2 billion in November 2024 deals alone matched peak production years, validating the transaction thaw after two-year freeze that created bid-ask paralysis. Opportunistic funds raised in 2023 deployed capital through Q3 and Q4 2024 at 7.8% average cap rates without competitive bidding, capturing the window between distressed seller capitulation and institutional buyer return that closes as transaction volume normalizes through 2025.