Forecasts for the second half of 2024 are similar to those for the first half, with one notable exception.

On September 18, the US Federal Reserve announced its first interest rate cut in almost four years. While the full effect will take some time to materialize, the expected outcome is clear: an uptick in consumer spending. This will almost certainly spill over into the housing market, which remains artificially subdued partly because interest rates are making it comparatively more expensive to borrow money.

In the office sector, there has been a noticeable flight to quality. Companies, recognizing that remote work is here to stay but that employees need to be in the office at least some of the time, have opted for smaller, more expensive spaces. Most now operate on a rule of thumb that around 60 desks will be needed for every 100 employees. Leases that expired after 2020 were not renewed; instead, companies redirected funds from leasing a 100-desk office to a more upscale 60-desk office. This shift has resulted in an abundance of empty offices that are unsuitable for conversion to residential uses—one in Manhattan made headlines for selling at a staggering 98% discount. More such cases are likely in the coming years.

In the residential sector, a combination of rising interest rates and restrictive zoning practices have created shortages across almost every type of property. The current cost environment incentivizes the construction of high-end, luxury residences of various densities. These developments are, by definition, not affordable for typical consumers, while affordable housing, conversely, is not as profitable. Lower interest rates should make more kinds of property profitable and help alleviate some of these issues.

Geographically, remote work has spurred growth in smaller cities located approximately 1-2 hours’ drive from larger metropolitan areas. Cities like New Haven, Milwaukee, and Providence have experienced population increases as remote workers from New York, Chicago, and Boston seek to stretch their salaries further. More expensive cities have fared less well, either failing to reduce their cost of living or find new uses for their vacant offices.