2024 U.S. Macro Outlook

Rolling Recession is Here

Cushman & Wakefield (NYSE: CWK) today released its 2024 U.S. Macro Outlook report which describes the economic landscape as a rolling recession, one in which some industries contract while others continue to expand. Sectors that are currently experiencing some version of a recession include manufacturing, transportation and warehousing, finance, and real estate. But the report emphasizes that within the commercial property sector there are both strengths and weaknesses.

“The backdrop for CRE in our baseline forecast is one with many shades of grey. Some sectors that are decelerating will probably surprise onlookers with their resilience—such as what we envision for industrial and multifamily demand. As for retail, limited supply puts a cap on just how high retail vacancy will go,” said Rebecca Rockey, Deputy Chief Economist and principal author of the report. “Although office is complicated, we believe we are well into the hybrid transition, and thus demand destruction will start to taper off. Nuance here matters and underscores the importance of fully understanding the sector to maximize opportunities for both occupiers and investors.”

Key Findings

Office:

U.S. office vacancy peaks in early 2025 at 21.5%, up another 210 basis points (bps) from today’s 19.4%.

Effective rents will decline another 5.4% in 2024, bringing the total expected peak-to-trough decline to 23%.

After peaking in Q1 2020 at 135.2 million square feet (msf), the office construction pipeline has receded by more than 50%, sitting now at 63.5 msf with little promise of a pickup anytime soon. Cushman’s economists note that the weakness in the construction sector is likely to benefit the highest quality segments of the property markets and, in general, help existing buildings repopulate a bit quicker.

By 2025, Cushman & Wakefield’s modeling indicates that most firms will have completed their downsizing as it relates to hybrid and remote work, allowing for the relationship between job growth and demand for office space to reestablish itself, and the office sector will begin to register positive absorption once again. From 2025 through 2033, the outlook calls for 222 msf of net absorption to be realized.

Industrial:

Industrial net absorption downshifted in 2023 coming off frenetic back-to-back years in 2021 and 2022,

Since the industrial boom that brought vacancy down to 2.8% in Q2 2022, vacancies have been drifting higher, rising to 4.7% as of Q3 2023. Vacancy will peak in early 2025 at 6.2%, roughly 200 bps lower than the historical average.