NAR Commercial Real Estate Forecast: Interest Rates to Fall?

By Hope Walborn | March 11, 2024 | 3 min. read

Topics including interest rates, retail absorption, inflation, commercial property prices and rent growth were discussed by NAR Chief Economist Lawrence Yun and Apartment List Chief Economist and Head of Product Analysis Igor Popov during a commercial real estate forecast webinar. Here are the highlights.

Interest Rates

Yun reported that today’s interest rates are much higher than normal. In 2019, they were around 5.5% before significantly dropping during the COVID-19 pandemic. Now, the prime rate is closer to 8.5%. He also noted that many community banks are suffering from current high rates.

Despite high rates, Yun is optimistic and believes they will decrease later this year and/or early into 2025.

Retail Absorption

“Retail absorption is turning negative, it looks like, in the first quarter,” Yun observed. Net retail absorption has trended positively since Q1 2021 and totaled 17.8 million square feet in Q4 2023, but in Q1 2024, it’s about -3.3 million square feet. Warehouse absorption seems to be similar, with a -12 million-square-foot absorption compared to 29 million square feet last quarter.

Office net absorption has been negative since Q1 2022 and is seeing especially low numbers now, he said. In Q1 2024, the absorption was -26.2 million square feet, which was a further decrease from -4.3 million square feet in the previous quarter.


Consumer price inflation was 3.1% in January. Yun stated, “Once inflation comes down to 2%, then the Federal Reserve would seriously consider interest rate cuts. But one big component driving this number is rents.” He believes both future CPI and future rent growth should be calmer, but further pivot could be limited by the government’s budget deficit.

Commercial Transaction Volume

Commercial transaction volume has decreased by 60% in the past two years and is lower now than before COVID. In 2023, the volume was just over $300 billion, a decrease from $600 billion in 2022.

Commercial Property Prices

Commercial property prices have been falling and are now lower than pre-COVID as well. In January, the index value was just over 120.

Rent Index

Popov reported that February rents rose 0.2% month-over-month, in line with last year’s seasonal recovery. Year-over-year rent growth is negative but stable at -1.0%.

“We’ve decelerated from a peak of 17% and now we’re at a point where rents are actually lower than they were a year ago in February,” he noted, adding, “On one hand, rents are 18% higher than they were going into the pandemic four years ago, but they’re about 6% down from their peak at the end of leasing season in August 2022.”

Pittsburgh is the 10th fastest-growing large metro based on year-over-year rent growth with a 2.5% increase, though many areas with slower rent growth are building significantly more. Additionally, the gap between suburban cities and core cities continues to widen, with more millennials favoring the suburbs over urban areas.

“Vacancy rates continue to grow in the multi-family sector,” Popov added. “In fact, in our national vacancy index, we’ve seen vacancy rise, and conversely occupancy fall.”

He noted that 2024 is the year new inventory will peak, as nearly one million apartments and multi-family units are currently under construction. Additionally, built-for-rent single-family homes are surging with 85,000 units having broken ground last year.

Webinar Recording

The webinar recording, as well as Yun’s and Popov’s presentation slides, are available on NAR’s Real Estate Forecast Summit page.

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