State of the COMMERCIAL Real Estate Market

Written By: Tyler Bennett, CEO

Published On: November 16, 2023


The past 18 months has been historic by any measure in the commercial real estate space.  As an industry we went from low cost of capital, high transaction velocity, sky high values, and the phycological snap-back from the COVID-19 Pandemic to…Well it’s hard to describe. Since March 2022, the Fed has raised interest rates a whopping 525 basis points!  WOW.  We went from a federal funds target rate of 0.25%-0.50% (March 2023) to a range of 5.25%-5.50% (as of July 2023).  That’s a lot to take on the chin and not fall on the mat.

As a vertically integrated Advisory and Development Company we are uniquely positioned with a perspective from multiple disciplines and asset classes in the Commercial Real Estate Space. Our Advisory platform is diverse with practices that include Tenant Representation, Investment Sales, Landlord Representation, Multifamily Sales, Dispositions, and our Owner/User Platform (O/U).  Additionally, our development platform has a primary focus on multifamily, retail, and commercial assets.

There are lots of opinions out there.  I wanted to share our perspective…and candidly, our opinion of what we think the future will hold.  Note, the following is a condense version for ease of reading.

Retail leasing has been incredibly resilient from the national, regional, and start up space occupiers. Food, entertainment, and health/fitness concepts have generally led the way as the most active category.  Some of this due to pandemic-related subsidies as well as the market demand for new choices.  The best located Shopping Centers and properties have backfilled many of their vacant spaces, have high occupancy rates, and have upgraded/modernized their merchandising mix.  We anticipate that good centers in well-positioned population trade areas will remain strong, many will continue to upgrade their Tenant mix, while space opportunities will begin to loosen up from the over-expansion of many start-up/chase the Post-Covid World deals.

Investment Sales have fallen sharply.  Seller’s expectations on cap rates in many cases equal interest rates for the first time in recent memory, making leverage/debt acquisitions nearly impossible.  Many of well-capitalized Buyers have taken ‘a wait and see’ approach for much of this 18-month, period until more recently.  Unless in a 1031 exchange, many buyers have been waiting for the “bottom”.  We see the investment market as the most opportunistic it has been in over a decade, and a great time to look for and consider an acquisition as CAP Rates have gone up.

Owner/User transactions have held steady after a historic boom.  Resoundingly seemingly unphased by the higher interest rate environment.  Much of this stemming from a historic business/revenue boom for business owners that are looking to either upsize/grow their offering or deploy excess capital to own their real estate instead of lease.  We anticipate this may slow in Q1 until values come down and will re-activate the demand for these types of assets if the overall economy maintains a level of growth and the unemployment numbers stay at or below 5%.

Multifamily sales have become very stagnant with lack of inventory available due to a rise in residential rental rates combined with higher interest rates.  The consensus here has been, “Why would I sell now if I do not have to”.   While this product class has historically had low supply, demand remains strong for fair priced, well positioned assets with upside, keeping private investors demand strong in the less than 100-unit space.  On the larger/institutional side, the market has had its doubts.  Many of the private equity, diverse capital stack deals that were acquired in the last 5 years at compressed cap rates have loan maturity dates upcoming and have not realized the rent growth they expected.  The consensus is there will be opportunity in this space unless lenders work with borrowers on their debt loads.  We expect this space to continue having strong private demand and expect to see some losses/give backs on the larger side.

On the Development Side, things have been very challenging.  Deals are generally underwritten 1-2 years before being put into service and had historically been safe to assume what interest rates would be at the time of stabilization/conversion or exit.  Material pricing has added to an already stressful underwriting process as well as the high basis for land.  All of this is making a typical hurdle return very challenging to find today.  In many cases, additional capital is required as lenders Loan to Cost ratios increased.  We believe this is a time to be patient and not chase any one deal.  On the retail side, we continue to lead with end-users to mitigate risk.  However, margins are slim and cost-of-time consideration is making us patient as we seek worthwhile projects.  On the overall market side, we expect that development demand will continue by virtue of more participants in the market than projects and the “pause” that backlogged new inventory during COVID.  This is a space for

What we see ahead is optimism overall and here is why..

We have the most clarity we have had in 18 months.  Yes, the bar is low but we were in a complete and utter free-fall.  The Fed is steadfast on their targeted 2% inflation rate, no doubt.  We don’t believe rates will increase by more than .25 to .75% in 2024.  We also are not betting on massive rate cuts in 2024 as getting to the target inflation rate can be a stubborn process.  We are near where we will be for the next 12 months, reasonably stable for the first time in a long time. Now is the time for acceptance, settling in, and determining how business is done in this environment.  We don’t EVER believe we will see the artificially low interest rates in this generation again, and most agree with that.  Pricing will improve as sellers decide to accept the reality of the market.

2022 and 2023 will be known as the year of the Spiral.  2024 will be a settling in year.  I recently read a report that said there is over $2 trillion in dry powder capital on the sidelines from family office, investors, institutions alike.  Some (not all) of this will deploy in 2024 creating a reactivation of transactions.  Assets will be lost and given back to lenders and there will be some pain in the next 12 months and beyond.

However, short of another black swan event, we are optimistic that 2024 will be an active year and look forward to servicing our clients, partners, and TEAM.


For more information on Bennett Companies visit our website;

About BR&D

Bennett Companies and its affiliated entities is a vertically integrated commercial real estate Advisory and Development Firm.  With over 70+ years of combined experience and in excess of $1 billion in valued transactions the firm focuses on retail/multifamily development and Advisory services that includes; Investment Sales, Retail Landlord Leasing, Tenant Representation, and Multifamily sales.

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