Real estate
Real estate

U.S. Real Estate Sector Report

Spring 2024

May 3, 2024 | 25 min read
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Sector conditions and outlook

Key:

Improving
Neutral
Deteriorating
Positive
Moderately positive
Neutral
Moderately negative
Negative
Apartment

The apartment sector continues to experience deterioration in market fundamentals, primarily due to oversupply in Sunbelt metros. Demand has remained largely positive but is not strong enough to offset record deliveries. Liquidity remains constrained but is generally favorable relative to other sectors today. The longer-term outlook remains positive despite near-term headwinds.

Current conditions:
Outlook:
Hotel

Hotel performance remains generally healthy as the recovery from the pandemic continues. Occupancy rates remain within their equilibrium range and RevPAR continues to show positive—albeit slower—growth on a 12-month trailing basis. The sector remains among the most tied to economic activity on a short-term basis and would be at risk if growth slowed materially.

Current conditions:
Outlook:
Industrial

The industrial sector is experiencing a slowdown in market fundamentals. Preliminary data throughout the first three months of 2024 show the first negative quarter of net absorption in more than a decade. New deliveries will remain a headwind through the balance of 2024 before easing due to capital market constraints. The sector remains favored by investors today and value declines have been restrained relative to other sectors.

Current conditions:
Outlook:
Office

The office sector continues to see a deterioration in both market fundamentals and investor sentiment. Private equity valuations are still in the middle of a significant corrective phase, while both liquidity and transactions remain scarce. The outlook is clouded by poor in-office attendance and uncertainty surrounding occupier strategies that will need to focus on a structural reduction in workplace attendance. While in-office visits have improved over the past 12 months they remain well below their pre-COVID trend.

Current conditions:
Outlook:
Retail

Although investors continue to take a cautious approach to the retail sector, it remains among the top performers in real estate. Performance and investor interest continue to be highly bifurcated, favoring grocery-anchored centers with value-oriented tenants. The lack of new development and consistent consumer spending on necessity goods has been supportive of strong occupancy at a time when most other sectors are seeing an erosion in fundamentals.

Current conditions:
Outlook:
Single-family rental

The sector continues to benefit from pricing dislocations in the for-purchase market. Demand has remained healthy, and supply is far more restrained than in the traditional apartment sector. Rent growth remains in the mid-single digits and a lack of debt available for new development will prove to be a tailwind for the sector over the next 12 to 18 months.

Current conditions:
Outlook:
Data centers

Data center demand remains robust and continues to outpace newly commissioned power in all major markets. Vacancy rates are near historical lows for the sector, allowing strong rental growth and adding fuel to an already hot sector. Debt availability and the ability to develop space to meet growing demand are the primary headwinds to the sector today.

Current conditions:
Outlook:
Student housing

Tenant demand remains healthy and leasing trends and pre-leasing levels for the 2024 academic year are at record highs—a measured improvement over 2023. Occupancy rates remain healthy and are supporting stable rental inflation. Capital market headwinds have prevented investors from being more aggressive in deploying capital into the sector despite strong investment performance relative to other sectors.

Current conditions:
Outlook:
Life sciences

The life sciences sector continues to experience moderate to severe headwinds following its solid performance over the past few years. Venture capital, which was plentiful during the height of the pandemic, has largely dried up for start-up firms with only well-capitalized companies with established therapeutic pipelines eying expansion in the current environment. Market fundamentals have suffered as a result and private equity performance has languished.

Current conditions:
Outlook:

Source: Principal Real Estate, April 2024.

For our detailed perspective on the conditions and outlook for each sector, please download the full U.S. Real estate sector report.

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MM11889-06 | 04/2024 | 3517194-062025