Economic growth ahead: Implications for multifamily and industrial sectors

At Walker & Dunlop Investment Partners (WDIP), we understand that the current commercial real estate (CRE) landscape is challenging. However, it is also ripe with opportunities for savvy investors.

We are strategically positioned to help you navigate these complexities and capitalize on emerging trends in the multifamily and industrial sectors. Here’s why we believe now is the ideal time to invest.

Economic overview: a resilient US economy

The US economy is showcasing strong fundamentals. In Q3, the Gross Domestic Product (GDP) grew by 2.8 percent, while inflation remained just above the Federal Reserve’s 2 percent target. Unemployment stands at a stable 3.7 percent. Consumers are thriving, with real consumer spending up by 3.7 percent and personal wealth increasing by $221 billion, fueled by a 3 percent rise in average hourly earnings¹.

Market sentiment is optimistic as we near the end of the current Presidential term. Record highs in equity markets reflect expectations of a pro-growth agenda. WDIP is reaping the benefits of robust industrial leasing activity and accelerating rental growth in its multifamily portfolio.

Multifamily market trends show recovery

The multifamily sector continues to pick up steam, with annualized absorption in Q3 reaching 488,000 units—an 88 percent increase from pre-pandemic averages. New construction starts lagging at 247,000 units during the same period. Real rental growth exceeded 3 percent for the quarter, with market vacancy steady at 5.3 percent.

Transaction activity is gaining momentum, with $27 billion in year-to-date volumes—a 10 percent increase from the previous year. Cap rates on closed transactions have improved at an average of 4.95 percent, slightly lower than the 5.31 percent seen earlier in 2023². Despite these positives, financing remains constrained by higher interest rates. Distressed opportunities are expected to rise, with a 26 percent increase in CMBS loans transitioning to special servicing. This represents a $51 billion balance—8.79 percent of the $581 billion CMBS market, according to Trepp.

Industrial market dynamics remain steady

The industrial sector maintains a solid footing, with a vacancy rate of 6.4 percent, below the historical average of 7.0 percent. Year-over-year rental rate growth reached 4.3 percent, even as net absorption normalized. In Q3, net absorption fell to 29.4 million square feet from 45.4 million square feet in Q2. This slowdown partly stems from political uncertainties, prompting cautious tenant expansion ahead of potential policy shifts.

Construction starts are also below average, with only 309 million square feet under development—levels not seen since 2018³. Industrial vacancy may peak by early 2025 as the sector adjusts to recent completions and limited new projects in major markets like Dallas, Los Angeles, and New York/New Jersey.

Private buyers dominated industrial transactions in 2023, accounting for 43 percent of sales volume. Meanwhile, institutional acquisitions dropped by 12 percent year-over-year⁴. WDIP capitalizes on this trend, targeting middle-market opportunities while larger institutional players remain sidelined in the industrial space.

Navigating real estate challenges

The commercial real estate landscape presents hurdles, from fluctuating interest rates to political uncertainty. On November 5, WDIP experienced a fire incident at an industrial property caused by mechanical equipment. Although the building’s structural integrity was preserved, warehouse contents and office spaces suffered damage.

WDIP responded swiftly, collaborating with local sponsors, insurance consultants, and tenants to address the damage, file insurance claims, and meet tenant needs. This incident underscores the importance of proactive management and local presence in strengthening tenant relationships.

WDIP’s portfolio remains resilient, and its business plans continues to focus on industrial and multifamily assets in robust markets. With capital ready for a buyer’s market, WDIP is positioned to seize emerging opportunities.

Key takeaways for real estate professionals

The multifamily and industrial sectors demonstrate strength in today’s economically favorable environment. While financing challenges persist, strategic adaptations and strong relationships will empower stakeholders to thrive in an evolving market.

At WDIP, our expertise in navigating complex market conditions and our focus on strategic investments in the multifamily and industrial sectors set us apart. We are committed to maximizing returns for our investors while minimizing downside risk through disciplined investing, active asset management, and a deep understanding of market trends.

Whether you are an existing investor looking to expand your portfolio or a potential investor seeking new opportunities, WDIP is here to guide you through the process. Contact our investment team today to learn how we can help you capitalize on the current market dynamics.

Invest with confidence. Invest with WDIP.

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^{Important Information: All investments have risk of loss; past performance is not indicative of future results. WDIP investments Are available only to qualified sophisticated investors. The opinions and forward-looking statements are that of the author at the time this letter was written and subject to change and market conditions change.}

¹ _{U.S. Department of Commerce and U.S. Bureau of Labor Statistics}

² _{Multifamily statistics obtained from Walker & Dunlop October 2024 Market Intelligence Group Report}

³ _{Cushman and Wakefield Industrial Q3 2024 Market Report}

⁴ _{CoStar Industrial Capital Markets Report- Q3 2024}