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Commercial real estate investing has long been seen as a source of dependable returns and dividends, but legendary investor Charlie Munger issued a warning in 2023 that points to dramatic change.

“A lot of real estate isn’t so good any more,” Munger, Warren Buffett’s close friend, told the Financial Times in April 2023. “We have a lot of troubled office buildings, a lot of troubled shopping centers, a lot of troubled other properties. There’s a lot of agony out there.”

Munger’s observations are backed by statistics that suggest softness in commercial real estate investing.

Keep reading for the commercial real estate statistics investors need to know in 2024.

Key findings

The total dollar volume of commercial real estate transactions was $647 billion in 2023, down from $1.14 trillion in 2022.

Commercial property values are down 7% in the past 12 months, led by a 14% decline in office value.

Industrial and multifamily properties continue to receive a larger share of commercial real estate investment than offices.

Commercial real estate dollar volume

Total global commercial real estate dollar volume in 2023 stood at $647 billion, a 47% drop from 2022. Analysts attribute the decline to stubbornly high interest rates and plummeting office values.

Investors pulled back from commercial real estate beginning in the third quarter of 2022. That was after roughly $600 billion poured into commercial real estate investing over the course of 2021, according to CBRE, a commercial real estate investing company.

The return to commercial real estate from 2021 to mid-2022 followed a similarly steep decline in 2020 amid the COVID-19 pandemic.

Commercial real estate investing: Volume by sector

Commercial real estate investing dropped in every sector in 2023 compared to 2022.

The largest declines in investment took place in the office sector (-$146 billion in 2023 compared to 2022), hotel sector (-$190 billion). Commercial real estate investment in retail properties dropped $44 billion, and investment in multifamily properties dropped $76 billion.

High interest rates created a drag on investments throughout the year. Office real estate remains under pressure because sellers are desperate to offload leases signed during or before the pandemic that are now pricey and often vacant or oversized. Hotels saw less investment in 2023 due to declining property values in the sector and perceptions among investors of risks in investing in hotels, like another pandemic.

Share of commercial real estate investment by sector

Significant shifts in commercial real estate investing have occurred since the pandemic.

Multifamily properties overtook offices for the largest share of commercial real estate investment in the second quarter of 2021 as the impact of remote work became apparent.

Industrial real estate drew a growing share of investment starting in 2020 amid the supply chain crisis and geopolitical developments that have encouraged nearshoring and reshoring.

Retail bottomed out in 2021 but began to rebound in 2022 as shoppers started returning to stores.

Changes in commercial real estate pricing

Commercial real estate property values are down 7% in the 12 months prior to May 2024 and 20% over a two-year period, according to the Green Street Commercial Property Price Index. The index shows the price of commercial real estate transactions.

Commercial real estate property values peaked in March and April 2022 after a steep drop in 2020 and a rapid recovery through 2021.

Here’s how commercial property values have changed since 2007:

Commercial real estate pricing by sector

Commercial real estate investing prospects vary by sector.

Property values are down across the board, with malls, office space, and net lease space all below 2007 prices. Unsurprisingly, those sectors have recently seen among the highest reductions in investment volume and have uncertain futures in the aftermath of the pandemic.

Here’s how the prices of each sector have fared from May 2024 to the year prior, according to Green Street’s Commercial Property Price Index:

Source: Green Street (2024). Sector Index Value Past Month Past 12 Months Recent Peak All Property 122.7 0.70% -7% -21% Core Sector 122.1 0.90% -7% -24% Apartment 141.0 2.00% -6% -26% Industrial 210.0 -1.70% -8% -17% Mall 84.3 5.30% 5% -14% Office 71.2 0.00% -14% -37% Strip Retail 111.0 1.50% -2% -16% Data Center 107.0 2.10% -5% -17% Health Care 120.6 -0.10% -9% -20% Lodging 106.4 0.20% -3% -6% Manufactured Home Park 269.4 0.00% -5% -17% Net Lease 94.3 0.10% -3% -19%

Multifamily commercial real estate investment trends

Multifamily commercial real estate has managed to come off record lows set in 2023 but is still struggling due to a combination of new supply lowering prices and high interest rates making borrowing expensive, according to the National Association of Realtors.

Vacancies in multifamily units are at 7.8%, a 10-year high that has slowed rent growth. Rents rose just 1% on average in the United States from April 2023 to April 2024.

Investment volume in multifamily commercial real estate fell to $157 billion in 2023 from $234 billion in 2022, a 32% decline, per CBRE.

Multifamily -- areas with fastest rent growth

Source: National Association of Realtors (2024). Area 2024 Q2 2023 Q2 Rockford, IL 5.71% 6.40% Kingsport, TN 5.49% 6.30% Lancaster, PA 5.36% 5.17% Evansville, IN 5.10% 2.46% Youngstown, OH 5.07% 5.73% Springfield, MA 4.79% 4.35% Syracuse, NY 4.78% 5.04% Louisville, KY 4.67% 2.91% Lexington, KY 4.64% 4.39% Montgomery, AL 4.61% 3.20%

Office commercial real estate investment trends

Declining investment in office space is driven by rising office vacancies and paltry rent growth.

The office vacancy rate as of April 2024 stood at a record 13.8% in the United States, while rents have grown by only 0.8% over the 12 months prior, according to the National Association of Realtors.

Other sources report even higher office vacancy rates. Moody’s estimated an office space vacancy rate close to 20% at the end of 2023, while Commercial Edge found the vacancy rate to be 17.8% in May 2024.

Tech hotspots have been hit the hardest by rising vacancy rates, while smaller cities and manufacturing hubs have fared better. San Francisco has a whopping office vacancy rate of 22.65%.

The rate of available office space, which measures vacant offices plus leased space that is not being renewed and space that a tenant is trying to sublet, is also at a record high of 16.4%, per CoStar Group.

Highest office vacancy rates

Source: National Association of Realtors (2024). Area 2024 Q2 2023 Q2 San Francisco, CA 22.65% 18.71% Houson, TX 18.63% 18.16% Dallas-Fort Worth, TX 17.93% 17.66% Denver, CO 17.03% 15.41% Washington, DC 16.90% 15.85% Austin, TX 16.77% 15.82% Chicago, IL 16.42% 15.88% Phoenix, AZ 16.21% 15.24% Los Angeles, CA 15.95% 14.80% Atlanta, GA 15.87% 15.03%

Lowest office vacancy rates

Source: National Association of Realtors (2024). Area 2024 Q2 2023 Q2 Hickory, NC 1.08% 2.30% Savannah, GA 1.42% 1.80% Wilmington, NC 1.66% 1.53% Myrtle Beach, SC 1.92% 2.21% Gulfport-Biloxi, MS 2.05% 3.20% Huntington, WV 2.15% 1.94% Davenport, IA 2.17% 2.39% Olympia, WA 2.39% 2.16% Pensacola, FL 2.55% 2.92% Asheville, NC 2.95% 2.51%

Industrial commercial real estate investment trends

Industrial commercial real estate had a slower 2023 compared to an impressive 2022. Net absorption, a measure of demand, in April 2024 hit a 10-year low, and the vacancy rate rose from 1.7% to 6.4% over the 12 months ending in April, according to the National Association of Realtors.

Industrial commercial real estate has seen the largest rent growth over the 12 months ending in April at 4.7%, led by demand for logistics space.

Dallas-Fort Worth, Chicago, Houston, and Phoenix are experiencing the most rapid occupancy growth rates.

Retail commercial real estate investment trends

Retail properties boast the lowest vacancy rate of the commercial property sector at 4.1%, which is a record low for the sector, per the National Association of Realtors.

General retail stores and neighborhood centers, which feature drugstores and supermarkets, were responsible for 85% of net absorption in the 12 months ending in April 2024.

Malls have the highest vacancy rate among retail properties at 8.6%.

Hotel commercial real estate investment trends

Hotels are showing some potential for investors. Occupancy rates remain just below pre-pandemic levels at 63%, but average daily rates and revenue per room exceeded pre-pandemic performance in the 12 months ending in April, according to the National Association of Realtors.

The 12-month occupancy rate for hotels in April 2024 stood at 62.7%, a few points below the 66% rate recorded in April 2019.

12-month occupancy rate for hotels

Source: National Association of Realtors (2024). 2019 2020 2021 2022 2023 2024 12-month occupancy rate ending in April 66.0% 60.2% 45.0% 60.5% 63.3% 62.7%

At the same time, the average daily rate per room was $157, up from $131 in 2019. Still, sales volume did not exceed that of 2019 and was far below the peak recorded in 2022 as travel surged after the pandemic.

12-month sales volume for hotels

Source: National Association of Realtors (2024). 2019 2020 2021 2022 2023 2024 12-month sales volume ending in April $31.4 billion $36 billion $12.6 billion $67.1 billion $38.7 billion $22.8 billion

How to get into commercial real estate investing

Adding real estate to your portfolio is a great way to diversify your investments, and there are plenty of ways to start investing in real estate.

The easiest way to invest in commercial real estate is through a real estate investment trust (REIT). These companies manage and own commercial real estate and trade on stock exchanges just like stocks. Most pay high dividends. Investors can pick from broad REITs that have exposure to different commercial real estate sectors or more focused REITs that own specific types of real estate.

Real estate funds are an alternative to REITs. These mutual funds or exchange-traded funds (ETFs) invest in REITs but don’t have to pay dividends, so they tend to grow more quickly.

Investors looking for more hands-on ways to invest in real estate should consider purchasing residential real estate and turning it into a rental property or trying their hand at house flipping. Both come with risks and require significant up-front investment plus long-term management.

Whether you opt for a REIT, a real estate fund, or an investment property, here are some important facets of real estate investing to keep in mind:

Commercial real estate has multiple sectors, each exposed differently to economic variables and other factors.

Geography is key. Commercial real estate markets differ by location, and each has its own supply and demand and planned construction.

Do your due diligence, especially if you’re purchasing real estate. Just like with any other investment, you will want to review financials and other documents. But with real estate, there are unique factors to consider, such as zoning, permitting, construction in the area, and how other similar projects have fared.

Sources

CBRE (2024). "Global Investment Activity Stays Subdued in Q4; Recovery Expected in H2 2024."

Federal Reserve (2024). “Assets and Liabilities of Commercial Banks in the United States - H.8.”

Green Street (2024). “Commercial Property Price Index.”

National Association of Realtors (2024). “May 2024 Commercial Market Insights Report.”