Commercial Market Snapshot Q4 2024

MARKET OVERVIEW

The third quarter’s performance was better than expected and market sentiment continued to climb in the fourth along with broad deal activity. There was general optimism over the return of a “business-friendly” administration to the White House, but there was caution as the industry wondered when Commercial Real Estate (CRE) interest rates would also become friendlier.

Optimism spurred by the .5% interest rate drop by the Federal Reserve (the Fed) in September pushed transaction volume to $68B in Q3, according to CoStar. This activity was off only 18.1% on an annual basis and an advancement of 10.5% from Q2. Also, year-to-date, 12-month rolling sales volume was slightly ahead of 2023. Transactions in Q4 were boosted by investors getting into the market ahead of a full rebound. Indeed, Costar reported that prices picked up for the third month in a row in October and cap rates may be compressing. While Office slightly pulled down the overall Q3 delinquency figure and distress deals rose in September, troubled properties have yet to play a big role.

The four major asset types all saw stronger deal activity in Q3, reflecting stabilizing fundamentals. According to JLL, Industrial has normalized; although vacancy ticked up again, rental rates remain the most attractive of all major asset classes at 3%. Retail rent growth was the strongest since 2008, and the holiday season heralds more in-store shopping and higher spending. Per the National Association of REALTORS^®, Multifamily net absorption¹ was again over 100% and the vacancy rate crept down. Even the concerned outlook for Office has tempered as net absorption¹ became positive in Q3 for the first time in eight quarters.

The Fed’s rate cuts totaled .75% through November, but commercial rates have yet to follow. The 5-², 7-³ and 10-year⁴ Treasury rates (which drive commercial rates) were all at least 75 basis points higher in mid-November than in September – a market signal that rates will be higher for longer due to president-elect Trump’s policies.

Trump’s stated goals include cutting corporate taxes – which may foster a larger government deficit while boosting the economy – as well as increasing tariffs broadly, but these factors could relight inflation. For CRE, the new plans may be both dampening and supportive.

For example, CHiPs and IRA allocations, which boosted Industrial development, may be slowed. But onerous tariffs could prompt more onshoring. An emphasis on reducing corporate burdens may inform upcoming debates on capital gains and 1031 exchanges, carried interest breaks and environmental standards. For right now, despite the unknowns, positivity is in the air.

A DEEPER DIVE: DATA CENTERS

For the past year, headlines about Artificial Intelligence (AI), and by extension, data center development, were unavoidable and optimistic. Of late, the costs of data center energy and water usage have come under scrutiny, particularly in some of the largest markets: Virginia, Texas and Georgia. Thus, growth may be easier in new markets.

The chart below details data center placement. New centers in new submarkets could become future clusters. For example, Virginia, which is already the dominant data center cluster in the U.S., will have the most expansion of a new computing footprint. But over half of the additional square footage will be an Amazon facility in Fredericksburg (about two hours south of Washington D.C.). In the West, while few new markets are in development, it is notable that Colorado and Indiana are getting data centers, albeit smaller ones, for the first time. In the Southwest and the Southeast, new construction will more than double the current situation. An Amazon building outside of Jackson, Mississippi, may bring more emphasis there. The Austin, Texas area will remain one of the top places for data centers, although smaller expansions are happening farther afield in Temple and Abilene.

WHAT’S NEXT? 

Stay tuned for next month’s Economic Update Q4 2024 to see how the year ends and what 2025 could have in store for commercial real estate.  

¹ Copyright© 2024 “October 2024 Commercial Real Estate Market Insights.” NATIONAL ASSOCIATION OF REALTORS^®. All rights reserved. Reprinted with permission. November 2024, https://cms.nar.realtor/sites/default/files/2024-11/2024-10-commercial-real-estate-market-insights-report-11-07-2024.pdf

² Board of Governors of the Federal Reserve System (US), Market Yield on U.S. Treasury Securities at 5-Year Constant Maturity, Quoted on an Investment Basis [DGS5], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/DGS5, December 2, 2024.

³ Board of Governors of the Federal Reserve System (US), Market Yield on U.S. Treasury Securities at 7-Year Constant Maturity, Quoted on an Investment Basis [DGS7], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/DGS7, December 2, 2024.

⁴ Board of Governors of the Federal Reserve System (US), Market Yield on U.S. Treasury Securities at 10-Year Constant Maturity, Quoted on an Investment Basis [DGS10], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/DGS10, December 2, 2024.

10 Easy Tips to Create a Healthier Home

Creating a healthier home is a vital step to enhancing your overall well-being. Your living environment can impact your physical health, mental clarity and emotional balance. By focusing on improving air quality and reducing exposure to harmful chemicals, you can transform your home into a healthy sanctuary. In this blog, we’ve compiled 10 easy tips to help you create a healthier home environment.

1. Take your shoes off at the door. According to a recent study by microbiologist Dr. Charles Gerba, the sole of a single shoe has an average of 421,000 units of bacteria. Removing your shoes at the front door is an easy way to keep your floors free of bacteria, chemicals and other hazardous substances that could be lingering on the soles of shoes.

2. Incorporate potted plants. Potted plants are often used to add color and texture to a room, but they also come with great health benefits. During photosynthesis, plants convert the carbon dioxide we exhale into fresh oxygen and remove toxins from the air. Potted plants not only help purify the air, but also provide allergy relief, improve sleep quality and reduce stress levels. According to a study conducted by NASA, some of the top purifying plants include the spider plant, peace lily, snake plant and bamboo palm.

3. Vacuum, sweep, mop and dust regularly. Dust mites and pet dander can trigger respiratory and dermatological conditions including asthma and eczema. Set a routine cleaning schedule to prevent buildup and ensure consistency.

4. Consider an air purifier. Improve the air quality in your home with an air purifier. Doing so can help fight against air pollutants, including mold spores and pesticides, and reduce your risk of developing respiratory illnesses. For guidance from ENERGY STAR^® about how to pick the right air purifier for your home, click here.

5. Avoid using cleaners with dangerous chemicals. A clean home contributes to a healthy lifestyle. However, some cleaning products contain toxic substances that can be detrimental to your health. Some harmful ingredients to look out for include:

• • Phthalates
  • Parabens
  • 2-butoxyethanol
  • Formaldehyde
  • Sodium hydroxide
  • Quaternary Ammonium Compounds
  • Linear Alkylbenzene Sulfonates
  • Phenols

For a list of products that offer safer ingredients, click here.

6. Schedule an annual chimney sweep. A dirty chimney contains high levels of creosote, soot, ash and dangerous gases, such as carbon monoxide, that can pose a risk to your health if inhaled. It can cause headaches, eye and skin irritations and difficulty breathing. For tips on how to reduce air pollutants while burning wood, click here.

7. Change your HVAC filters often. Several factors account for how often you should change your filter, such as the age of the HVAC system, the type of filter used, if you live in a dry climate, and whether or not you have pets. According to ENERGY STAR, you should check the air filter on your central air conditioner, furnace or heat pump once a month. Most HVAC companies and air filter manufacturers recommend changing the filter every three months.

8. Invest in water filters. A 2023 study conducted by the United States Geological Survey (USGS) found that at least 45% of the nation’s tap water could contain one or more types of harmful chemicals known as Per- and Polyfluorinated Substances (PFAS). A water filtration system or individual sink filters can help remove unwanted impurities, leaving you and your family with a healthier water supply.

9. Beware of mold. Mold growth can occur due to moisture/condensation, poor ventilation and water leaks. If left untreated, it can lead to health concerns, from allergic reactions and respiratory complications to lung infections and neurological effects. Mold can also cause unsightly stains and structural damage that could decrease the value of your property. Conducting regular mold inspections using an at-home kit or the help of a professional can help keep you and your family safe and avoid costly repairs. For more information on mold, its effects and guidance for addressing mold issues in your home, click here.

10. Let the outside air in. Studies conducted by the EPA found that air pollutants are often two to five times higher indoors than outdoors. Opening windows and doors to allow fresh air in can help reduce your exposure to indoor pollutants, cleanse your lungs, improve heart and brain health, and elevate your overall mood.

Incorporating healthier habits in your home is an easy way to enhance your quality of life. Making mindful choices to improve indoor air quality and avoid toxic cleaning products can help create a space that supports both physical and mental well-being. Start today to watch your home transform into a heathier environment for you and your family!

7 Reasons Homeowners Need Title Insurance

Purchasing a house is a momentous occasion and likely one of the biggest purchases you’ll ever make. Such an investment requires proper protection, especially considering it’s the very place you and your family call home. One way to protect your property with title insurance. Here are seven reasons why title insurance is vital for homeowners’ financial security.

WHAT IS TITLE INSURANCE?

First, let’s review what title insurance does. A title is the evidence of ownership and possession of property, which stands against the right of anyone else to claim it. Title insurance is a means of protection against financial loss, should any title defects or third-party claims arise from your title.

There are two types of title insurance policies:

1. An owner's title insurance policy is a policy of indemnity and protects the homebuyer’s property rights against covered claims that may surface after purchase. While not required, it is always in your best interest to purchase an owner’s title insurance policy.

2. A loan policy (or lender’s policy) insures the financial investment of the lender or bank, and is typically required to get a mortgage loan.

REASONS TO PURCHASE TITLE INSURANCE

1. A THOROUGH TITLE SEARCH

Before you commit to buying or refinancing property, a title examiner will examine title plants or public record databases to determine ownership of the property and to uncover deeds, mortgages, wills, divorce decrees, court judgments, tax records, liens, encumbrances, bail bonds and maps associated with the property. This search is designed to disclose any potential title defects or legal issues ahead of time.

2. PROTECTION FROM UNFORESEEN DEFECTS

Even after the most exhaustive title search, there is still a chance that unforeseen title defects could surface long after you’ve purchased your new property. Title insurance protects the policyholder from undisclosed:

• Liens that are the result of a prior owner’s actions, which can be placed against the property by a contractor, tax authority or lender who hasn’t been paid.

• Easements or a third party’s right to use or access your property, even though you are the owner. Say a utility or sewer line runs through your backyard. If so, the utility or sanitation company has an easement allowing them to access your property. That easement could also prohibit you from using your property however you want, such as building a garage or adding a pool.

• Encumbrances or other forms of claims against the property, which can include restrictive covenants imposed by homeowners’ associations or leaseholder rights.

• Outstanding debt from the previous owner, such as mortgages, judgments, unpaid child support or unpaid taxes.

• Conflicting wills or an undisclosed/unknown heir of a previous owner suddenly claiming ownership.

3. PROTECTION FROM UNFORESEEN RISKS OR CLAIMS

If the previous record owner was deceitful, or an error was made in any documents, title insurance will protect you from certain covered risks, not exceeding the amount of the insurance policy, including a defect in title caused by things like:

• Forgery of documents

• Fraud or impersonation of the property’s true owners

• Clerical errors that result in a document not being properly filed, recorded, or indexed in the public records.

4. PROTECTION IN COURT

Should a covered defect in your property’s title or a claim arise, your title insurance underwriter will protect your financial interests, including defend you in court and settle any covered claims for you.

5. A LOW ONE-TIME PAYMENT

Unlike most insurance policies that have monthly premiums, owner’s title insurance requires a one-time fee at closing. This one-time fee typically accounts for about 1% of the purchase price and protects you from covered risks for as long as you or your heirs own the property. Check out Old Republic Title’s Rate Calculator to find rates in your area.

6. DIFFERENT FROM HOMEOWNER’S INSURANCE

While often confused, title insurance is not the same as homeowner’s insurance. The latter protects the property structure and your belongings, while title insurance protects your right of ownership to the property.

7. PEACE OF MIND

Title problems (“defects”) are relatively common. While most of them can be fixed, you can’t fix something that is unknown. Chains of title can go back hundreds of years, during which time documents can be lost, destroyed or never filed. Title defects that come to light after the transaction can threaten property rights and create costly title disputes without the security of title insurance.

If buying or refinancing a home is on the horizon for you, purchasing title insurance should be, too! Fees vary by state, so contact your local Old Republic Title representative for more information.

Economic Update Q2 2024

Although a lack of rate movement by the Federal Reserve (The Fed) postponed the real estate markets’ rebounds this quarter, there were silver linings. A subdued spring buying market meant that sustained home construction gave a much-needed boost to the national housing stock. The slide on the commercial side leveled and consistent interest rates brought some certainty to valuations. Looking forward to Q3, confidence is going to be key to reviving transactions.

Residential Real Estate

Stubborn inflation stayed The Fed’s hand from reducing its rate this quarter, deferring the anticipated housing market full recovery. Homebuyers were frustrated by worsening affordability. The 30-year fixed mortgage rate returning to the low 7s in April and median existing home prices¹ hitting a new high in May were dark clouds over demand. Consequently, existing single-family home sales were virtually flat in the second quarter and down 2.4% year- over-year. New home sales rose only 2.6% this quarter and were roughly the same as Q2 2023.

Fortunately, the supply picture was brighter. Active, new and total home listings have been on the rise over the last seven months, according to REALTOR.com². New construction also prominently boosted listings. Although builders' confidence³ faltered with each Fed meeting, they continued to add to the housing stock; annualized single-family housing starts were firmly above 1 million units over the last three quarters. The current inventory position, prices and room for concessions are supportive of much-needed building.

As the chart⁴ below shows, underbuilding has been an issue since the Great Financial Crisis. According to the National Association of REALTORS^®, the housing stock is short about 4.7 million units. The National Association of Home Builders estimates that housing starts need to be above 1.5 million units for several years to rebalance the market. Although the temporary pause in sales growth is disappointing, it does afford the industry time to boost its supply in anticipation of better buying conditions.

Commercial Real Estate (CRE)

Without an interest rate reduction jolt, the CRE market settled into a low, but steadier state in the first half of the year. CoStar data showed that Q2 2024 transactions had a slight uptick from the previous quarter for the four major asset groups, to approximately $50 billion. On an annual basis, drop-off of deal volume moderated to about 40% after spending multiple quarters in the 50% range. There was minimal movement in cap rates this quarter. According to CoStar’s U.S. Composite Value Weighted CCRSI, price declines lessened, possibly indicating a market floor. Distressed deals accounted for less than 3% of activity in May.

Bisnow reported that private equity and non-bank lenders are working in the background to make capital infusions and refinancings possible. Loan modifications⁵ for 2024 were also on record pace at over $9 billion by the end of May. The absence of distress drama and the industry’s resilience so far in 2024 were surprises to many market participants, according to a recent survey.

Opportunistic owner-occupier acquisitions accounted for a good share of Office activity but the sector remained ladened with vacancy rates⁶ at 13.8%. For Retail, the supply side was very tight, keeping vacancy rates at a record low of 4.1%. The unprecedented delivery of apartment units over the last 12 months drove down annual rent growth to 2.8% in April. However, the rent/buy decision stayed solidly tipped in rental’s favor; vacancy rates stabilized at 7.8%. Industrial deal activity was markedly positive in Q2 2024, reflecting its excellent prospects. AI technology and the resurgence of data centers also brought more attention to Industrial. As one investor⁷ recently noted, “All the best and brightest institutional investors are trying to buy industrial right now.” While net absorption dropped off with the rightsizing of the post-pandemic economy, industrial rent growth was still strong at 4.7%, per JLL.

A Glance Forward

The mildly positive current trends the economy and residential real estate markets experienced in the second quarter are expected to continue this summer. If inflation inches down with little worsening in the job market as Fannie Mae forecasts, The Fed will likely cut rates this fall. The Mortgage Bankers Association expects the 30-year fixed rate mortgage to stay slightly below 7%, breathing a bit of life into the housing market.

Housing starts will likely continue above 1 million units, improving inventory and softening prices. According to Fannie Mae’s recent Home Purchase Sentiment, the “locked in” effect may be fading, as sellers are increasingly motivated to sell by life events and financial reasons. While buyers remain wary, they have not forgotten to “date the rate, marry the house,” evidenced by an expected return in refi originations. Given these factors, economists expect an uptick in new and existing home sales.

Confidence may be crucial to the upcoming quarter’s CRE market as well. The steadfastness in The Fed’s position has removed one of the impediments to deals – uncertainty over rates. This has brought confidence in valuations, making refinancings and new deals easier. According to Bisnow, Industrial deals have been the first beneficiary of this situation, and Retail and Multifamily may not be far behind, given the growth in targeted investor funds for these sectors.

It seems that everyone could use a bit more confidence this swimsuit season.

¹Copyright ^©2024 “Existing Home Sales Edged Lower by 07% in May as Median Sales Price Reaches Record High of $419,3000.” NATIONAL ASSOCIATION OF REALTORS^®. All rights reserved. Reprinted with permission. Existing-Home Sales Edged Lower by 0.7% in May as Median Sales Price Reached Record High of $419,300 (nar.realtor)

² REALTOR.com. May 2024 Housing Market Trends Report—Realtor.com Research

³ National Association of Home Builders. NAHB/Wells Fargo Housing Market Index (HMI) | NAHB

⁴ U.S. Census Bureau and U.S. Department of Housing and Urban Development, New Privately-Owned Housing Units Started: Total Units [HOUST], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/HOUST, June 27, 2024

⁵ CRED IQ. Loan Modifications Swell 195% in 12 Months: CRED iQ | CRED iQ Blog (cred-iq.com)

⁶ Copyright ^©2024 “Commercial Real Estate Market Insights, May 2024.” NATIONAL ASSOCIATION OF REALTORS^®. All rights reserved. Reprinted with permission. July 2024, PowerPoint Presentation (nar.realtor)

The FAQs of Title Insurance For Homebuyers

For most of us, a home is the largest investment we'll make in our lives. To buy with confidence, get owner's title insurance. It's the smart way to protect your property from legal claims. To help you understand how owner's title insurance works, here are answers to common questions.

What is title?

Title is your right to own or use your property. Title also establishes any limitations on those rights.

What is a title search?

A title search is an early step in the homebuying process, conducted of the public records, to uncover issues that could limit your rights to the property. If a title issue is discovered, most often your title professional will take care of it without you even knowing. After the title search is complete, the title company can provide a title insurance policy.

What is title insurance?

If you're buying a home, title insurance is a policy that protects your investment and property rights.

There are two different types of title insurance: an owner's policy and a lender's policy.

1. An owner's policy is the best way to protect your property rights. Either the buyer or seller may pay for this policy. Ask your title professional how it's handled in your area.
2. A lender's policy is usually required by the lender and only protects the lender's financial interests. The buyer typically pays for this policy, but that varies depending on geography. Ask your title professional how it's handled in your area.

Why should I purchase owner's title insurance?

Owner's title insurance protects your investment in your property from certain future legal claims regarding ownership of your property. For a one-time fee, you and your heirs receive coverage for as long as you own your home. The owner's policy also covers potential legal fees and court costs for settling claims covered by your policy.

What does owner's title insurance cover?

Sometimes undiscoverable defects can come up after the title search. Under an owner's title insurance policy, you are protected against certain undiscovered errors in the title.

Title issues include unknown:

• Outstanding mortgages and judgments, or a lien against the property because the seller has not paid his taxes
• Pending legal action against the property that could affect you
• Unknown heir of a previous owner who is claiming ownership of the property

Unforeseeable title claims include:

• Forgery: making a false document
  - For example, the seller misrepresents the identity of the person who sold the property.
• Fraud: deception to achieve unfair gain
  - For example, someone steals your identity and either sells your house without your knowledge or consent, or takes out a second mortgage on the property and walks away with the money.
• Clerical error: inconsistent paperwork and historical records
  - For example, an unforeseeable discrepancy in the property or fence line can cause confusion in ownership rights.

What does owner's title insurance cost?

The one-time payment for owner's title insurance is low relative to the value of your home.

How long am I covered?

Your owner's title insurance policy lasts for as long as you or your heirs own your property. Your life will change over time, but your peace of mind never will.

What happens at closing?

Closing is the final step in executing the homebuying transaction. It is the process that allows the transfer of ownership to occur. Upon completion of the closing process, you get the keys to your home!

Where can I get more information?

The American Land Title Association helps educate homebuyers like you about title insurance so you can protect your property rights. Check out www.homeclosing101.org to learn more about title insurance and the home closing process.

This advertising offers a brief description of insurance coverages, products and services and is meant for informational purposes only. Actual coverages may vary by state, or locality. You may not be eligible for all of the insurance products, coverages or services described in this advertising. For exact terms, conditions, exclusions, and limitations, please contact an Old Republic Title representative.