Aegon Asset Ma… - Thu, 12/14/2023 - 21:59

US CRE Market Insights - December 2023

  • The US Federal Market Operating Committee (FOMC) agreed to hold interest rates steady for the second consecutive time in November at a target range of 5.25-5.50%.
  • Financial conditions have tightened with the 10-year Treasury rising in October to the highest level since 2007.1 This, coupled with tensions in the Middle East, continues to put pressure on the global economy. As a result, many economists surveyed by the Blue Chip Economic Indicators believe the fed-funds rate has peaked and the first rate cut to occur in the second half of 2024.2
  • Inflation continued to slow its slimmest year-over-year gain at 3.5% as measured by the core personal consumption expenditure, that was slightly above the 2% Fed target.3
  • Within commercial real estate debt, lenders are beginning to deploy 2024 allocations, and spreads are compressing slightly and are in the 180-210 range as of early December. However, corporate bond spreads continue to tighten, maintaining the commercial mortgage loans to corporates spread gap.
  • Property transaction volume was down 53% during the third quarter of 2023 and 55% year-to-date compared to the same period a year ago.4
  • Property value declined by 0.6% on an annualized basis from August to September, and 9% compared to last year.4
  • NCREIF National Property Index (NPI) returned -8.4% for the year ending September 30, 2023, compared to 16.1% a year ago. Capital appreciation was reported as -12.1%, with income return at 4.1%.5
  • While we are cautious on the retail sector, performance is outpacing other sectors with grocery-anchored and necessity-based retail remaining the most preferred subsector.

Property sector outlook

Office-17.1%1.4%13.3%12.2%0.6%1.4%Most Cautious

Sources: National Council of Real Estate Investment Fiduciaries, CoStar Realty Information Inc., and Aegon Real Assets US. As of September 30, 2023.


The apartment sector continues to face cyclical supply headwinds, while demand fundamentals remain healthy. Currently, the sector is at the peak of the supply cycle, but tightening monetary policy and construction challenges are expected to reduce supply in the coming years.


The industrial sector saw a notable increase in construction completions in 3Q 2023, leading to a trend of escalating vacancy rates and cooling rent growth. Escalating construction costs and high interest rates continue to leave investors hesitant to start new projects, which will likely reduce new supply by late next year. Despite these challenges, fundamentals for the sector remain well-positioned against near-term supply headwinds, and we expect the sector to continue to normalize towards pre-pandemic levels in 2024.


Office sector fundamentals continue to face structural challenges led by changing post-pandemic work arrangements. Anecdotal evidence suggests that only a third of office leases have come up for renewal since the pandemic so far. Further deterioration in office fundamentals is likely as those leases expire and tenants negotiate for lower rates or downsize to smaller square footage if the overall sentiment on office use does not improve.


The retail sector remains resilient with vacancy rates reaching a new low in the third quarter. Demand for retail space continued to rise, with availability in desirable locations tightening even further. Despite high demand, new construction remains very challenging due to high construction costs and stringent lending conditions. The retail sector is expected to remain well-positioned to endure a potential recession.

1 Board of Governors of the Federal Reserve System. October 31, 2023
2 Wolters Kluwer. Blue Chip Economic Indicators. November 10, 2023
3 US Bureau of Economic Analysis. Personal Income and Outlays. October 31, 2023
4 MSCI Real Capital Analytics. September 30, 2023
5 National Council of Real Estate Investment Fiduciaries. September 30, 2023


This material is provided by Aegon Asset Management (Aegon AM) as general information and is intended exclusively for institutional and wholesale investors, as well as professional clients (as defined by local laws and regulation) and other Aegon AM stakeholders.
This document is for informational purposes only in connection with the marketing and advertising of products and services, and is not investment research, advice or a recommendation. It shall not constitute an offer to sell or the solicitation to buy any investment nor shall any offer of products or services be made to any person in any jurisdiction where unlawful or unauthorized. Any opinions, estimates, or forecasts expressed are the current views of the author(s) at the time of publication and are subject to change without notice. The research taken into account in this document may or may not have been used for or be consistent with all Aegon Asset Management investment strategies. References to securities, asset classes and financial markets are included for illustrative purposes only and should not be relied upon to assist or inform the making of any investment decisions. It has not been prepared in accordance with any legal requirements designed to promote the independence of investment research, and may have been acted upon by Aegon AM and Aegon AM staff for their own purposes.
The information contained in this material does not take into account any investor's investment objectives, particular needs, or financial situation. It should not be considered a comprehensive statement on any matter and should not be relied upon as such. Nothing in this material constitutes investment, legal, accounting or tax advice, or a representation that any investment or strategy is suitable or appropriate to any particular investor. Reliance upon information in this material is at the sole discretion of the recipient. Investors should consult their investment professional prior to making an investment decision. Aegon AM is under no obligation, expressed or implied, to update the information contained herein. Neither Aegon Asset Management nor any of its affiliated entities are undertaking to provide impartial investment advice or give advice in a fiduciary capacity for purposes of any applicable US federal or state law or regulation. By receiving this communication, you agree with the intended purpose described above.
Past performance is not a guide to future performance. All investments contain risk and may lose value. This document contains "forward-looking statements" which are based on Aegon AM's beliefs, as well as on a number of assumptions concerning future events, based on information currently available. These statements involve certain risks, uncertainties and assumptions which are difficult to predict. Consequently, such statements cannot be guarantees of future performance, and actual outcomes and returns may differ materially from statements set forth herein.

©2023 Aegon Asset Management. All rights reserved.
AdTrax: 6093863.1GBL


Sign Up Now for Full Access to Articles and Podcasts!

Unlock full access to our vast content library by registering as an institutional investor .

Create an account

Already have an account ? Sign in