Downward angle icon Downward angle icon. Investment in U.S. commercial real estate fell 52% last year, according to CBRE. Gary Hershorn/Getty Images Investment in U.S. commercial real estate fell 52% last year, to the lowest level since 2012. New York led the way with $33 billion, followed by Los Angeles with $30 billion. Offices saw the biggest declines as they continue to struggle with COVID-era remote work trends.
The U.S. commercial real estate market saw a sharp decline in investment last year, with capital inflows into the market falling by more than 50% to the lowest level since 2012.
Commercial real estate investment in the fourth quarter fell 44% on an annualized basis to $81 billion, according to CBRE. That brings the full-year total to $348 billion, 52% below 2022 levels, according to CBRE. The figure is just slightly above the $340 billion recorded in 2012.
CBRE noted that direct investments by real estate companies fell 91% year over year to $1.4 billion in the fourth quarter, citing rising financing costs as the reason. Individual property sales also fell 36% to $68 billion, while bulk portfolio sales fell 45% to $12 billion.
New York led the way with $33 billion in investment, followed by Los Angeles with $30 billion.
By property type, investments in multifamily and industrial assets totaled $26 billion and $19 billion, respectively.
The US office sector actually lagged behind in terms of investment, with just $14 billion invested in the fourth quarter, down 33% compared to the same period in 2022.
As remote work becomes more common, office vacancy rates have risen to a 30-year high of 18.6%. Office property values have fallen the most among real estate types, with CBRE noting that office prices have fallen 16% year-over-year.
Billionaire Starwood Capital CEO Barry Sternright warned last month that the office building collapse could cost the city $1 trillion, and other real estate experts have said it could take years for the market to recover to pre-pandemic prices.Researchers at Capital Economics predicted last month that the 20% drop from peak to crash in office building prices will be completed by the end of this year.
The dimming outlook for commercial real estate, especially offices, has to do with the tough financing conditions many commercial property owners are currently facing. With billions of dollars in commercial property coming due each year, owners must grapple with refinancing existing debt at high interest rates. While interest rates are expected to fall in 2024, office property owners will still be plagued by high vacancy rates.
One solution is to convert offices into housing, but not all buildings are suitable for that: Since 2021, office-to-residential conversions have surged 357%.