The commercial real estate (CRE) landscape in 2024 is significantly shaped by federal policies and regional regulations. These updates influence everything from transaction volume to property values and development trends. For CRE investors and professionals, staying attuned to these shifts is crucial for making informed investment decisions and identifying emerging opportunities.
1. Federal Interest Rate Adjustments
In response to ongoing inflation concerns, the Federal Reserve has maintained a higher interest rate environment. Elevated borrowing costs have slowed CRE transaction volumes, particularly impacting highly leveraged sectors like office and multifamily developments. While certain markets remain resilient, CRE investors are increasingly pivoting to sectors like industrial and logistics, which tend to be more resilient to interest rate changes due to strong demand fundamentals.
Key Takeaway: High interest rates make debt more expensive, prompting many investors to rely on equity-backed deals, prioritize cash flow stability, and explore shorter-term financing options.
2. Infrastructure Investment and Jobs Act (IIJA)
The 2021 IIJA has ramped up federal investment in infrastructure, with funding finally reaching many communities in 2024. This influx of federal funds is spurring CRE growth in several sectors, particularly industrial, warehousing, and data centers, to support new infrastructure needs. Additionally, the IIJA prioritizes public transit and renewable energy projects, encouraging green building developments and creating demand for mixed-use, transit-oriented properties in major metropolitan areas.
Key Takeaway: Regions benefiting from infrastructure projects are likely to see accelerated CRE growth, especially near upgraded transit hubs and in energy-efficient property classes.
3. Tax Incentives and the Inflation Reduction Act (IRA)
The Inflation Reduction Act includes several CRE-relevant tax credits and incentives aimed at promoting green building, energy efficiency, and sustainable practices. Developers investing in energy-efficient properties can leverage credits for solar installations, EV charging stations, and other green upgrades. Additionally, Opportunity Zone extensions and certain favorable depreciation measures remain in place, further motivating developers and investors to prioritize sustainability in their projects.
Key Takeaway: These tax incentives lower the financial barrier to sustainable development, giving investors who embrace green building principles a competitive edge in rental and occupancy rates.
4. Regional Zoning and Land Use Changes
On a regional level, zoning and land-use policies are evolving to address housing shortages, particularly in fast-growing cities. States like California and New York have recently amended zoning laws to support high-density residential and mixed-use developments. Such changes aim to alleviate the housing crisis, reduce commuter congestion, and encourage more walkable urban spaces. CRE investors focused on multifamily or mixed-use properties in high-demand areas are especially poised to benefit from these regulatory shifts.
Key Takeaway: Regional zoning reforms create new opportunities for high-density developments, favoring CRE investors who can navigate regulatory environments and focus on urban-infill properties.
5. Industrial Sector Growth Amid Supply Chain Reconfigurations
Federal trade policy shifts, particularly tariffs and reshoring incentives, are fueling a demand for industrial and warehousing spaces in regions with strong logistics infrastructure. This trend, coupled with evolving e-commerce needs, has transformed logistics hubs such as Texas, Illinois, and Pennsylvania into hotbeds for industrial CRE growth. To meet demand, many investors are repurposing older properties into high-tech industrial centers near transportation hubs.
Key Takeaway: Logistics and warehousing sectors remain robust, and areas with strong infrastructure, port access, and proximity to major interstates are top targets for industrial property investments.
6. Remote Work Policies and Regional Office Market Recovery
Federal and state policies regarding remote work impact regional office markets differently. For instance, metropolitan areas with high government employment, such as Washington D.C., are seeing slow recovery in office occupancy due to persistent remote and hybrid work policies. Conversely, areas promoting a return-to-office culture or housing industries reliant on in-person work, such as life sciences and tech in Austin and Raleigh, show more robust office demand.
Key Takeaway: The office sector’s recovery is uneven, with investors favoring cities that attract industries requiring in-person work environments and prioritizing high-quality, amenity-rich office spaces.
7. Affordable Housing Initiatives
Federal and state governments are increasing incentives for affordable housing development. Initiatives such as the Low-Income Housing Tax Credit (LIHTC) and various local grant programs encourage CRE investors to participate in affordable housing projects. While regulations on rent control and eviction moratoriums affect profitability, the demand for affordable units remains high, especially in urban and suburban regions with fast population growth.
Key Takeaway: Investors involved in affordable housing can benefit from favorable financing and tax credits, though careful consideration of local rent regulations is essential to balance profitability.
8. Environmental Regulations and CRE Compliance
Regional environmental regulations, such as New York City’s Local Law 97, which imposes fines on buildings exceeding carbon emissions limits, are increasingly shaping CRE investments. Properties with high energy consumption face higher operating costs, leading investors to prioritize energy-efficient building upgrades. States and cities with stricter environmental mandates are driving demand for sustainable development practices, and this trend is expected to grow.
Key Takeaway: Compliance with environmental regulations is becoming non-negotiable. Properties that meet these standards or can be retrofitted to reduce emissions are likely to command premium prices in the market.
Looking Ahead: Strategic Considerations for CRE Investors
Staying updated on federal and regional policy changes is crucial for making informed CRE investments. From navigating interest rate hikes to capitalizing on sustainable development incentives, strategic investors can leverage these updates to optimize portfolio performance.
In today’s dynamic environment, leveraging tech solutions is increasingly essential. VidTech helps CRE investors stay ahead by delivering high-quality, data-enriched property videos that facilitate informed decision-making. With a suite of 4K video, drone footage, and data overlays, VidTech’s tools allow investors to understand property value in a comprehensive, visual format, ultimately enhancing the decision-making process amid changing market dynamics.
