U.S. Commercial Property Market Shows Signs of Recovery in May: A Detailed Analysis

The U.S. commercial property market experienced a notable rebound in May, signalling potential stabilisation after a prolonged period of decline. This development has sparked cautious optimism among property professionals, anticipating a market bottoming-out phase within the next year.


Key Indicators of Market Recovery

According to CoStar Group’s Commercial Repeat-Sale Indices, which monitor repeat property sales, there was a significant uptick in transaction activity and property sale prices in May. The number of repeat sales surged from 1,041 in April to 1,207 in May, while transaction volumes increased for the third consecutive month, reaching $8.4 billion—up 0.6% from April. These trends suggest that investors are more inclined to buy at current prices, potentially indicating a newfound confidence in market stability.


Challenges to Overcome

Despite these positive signs, the commercial property market faces ongoing challenges, particularly regarding vacancy and capitalisation (cap) rates. Higher interest rates have led to increased financing costs, while lower rent revenues have eroded returns, pushing cap rates upward. This dynamic, coupled with a growing pipeline of new construction, has resulted in elevated vacancy rates, which could continue to climb through 2025.

“While it’s entirely possible that we could be in the process of finding a bottom in pricing, in past cycles, we typically didn’t see prices level out until vacancy and cap rates peaked at about the same time,” commented Chad Littell, national director of U.S. capital markets analytics for CoStar.

Moving Markets

New Construction and Vacancy Rates

In the second quarter of 2024, we expect the completion of newly constructed properties across the office, retail, and industrial sectors to reach 136.3 million square feet. This influx of new space could exacerbate existing vacancy issues, posing a potential hurdle to market stabilisation.

Distressed Sales Decline

The report highlights a positive development: a decrease in distressed property sales. In May, we classified only 2.2% of repeat sales as distressed, half the rate from April. This decline indicates that investors are increasingly finding viable investment opportunities beyond financially troubled properties.

Market Segments Show Resilience

Both high-end and low-end segments of the commercial property market demonstrated resilience in May. The value-weighted U.S. Composite Index, which reflects high-dollar trades in major markets, saw its first increase in nine months, 1.3%. Meanwhile, the equal-weighted U.S. Composite Index, which tracks smaller market sales, also edged up by 0.2%, remaining near its all-time high.

Net Absorption Concerns

However, the overall market remains cautious due to ongoing net absorption concerns. Tenants are leasing less space than they are vacating. For the second quarter of 2024, net absorption is projected to total 19.2 million square feet across office, industrial, and retail properties. Over the past year, tenants have vacated 28.9 million square feet more than they have occupied, reflecting persistent challenges in balancing occupancy levels.


While May’s data provides a glimmer of hope for the U.S. commercial property market, significant challenges remain. Rising vacancy rates, cap rate pressures, and net absorption issues underscore the need for strategic adaptation and proactive management. Investors and market professionals will need to carefully monitor these trends as they navigate the path to a potential recovery.

This analysis aims to provide a comprehensive overview of the current state of the U.S. commercial property market, highlighting both the positive developments and ongoing challenges. As the sector continues to evolve, maintaining abalanced perspective and strategic approach will be essential for success.


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