Q4 2024 Market Outlook
By Dusty Batsell
As the dust from the national elections settled in the fourth quarter, the new administration moved swiftly to implement key policy initiatives and deliver on commitments made on the campaign trail. While the long-term impact of these policies will take time to materialize, the overall sentiment includes a positive outlook for both the economy and commercial real estate. Investors are anticipating a pro-business environment, particularly with the administration’s stated goal of driving interest rates down and introducing growth-friendly policies. Two key initiatives to watch in 2025 include immigration reform and tariff adjustments, both of which could influence consumer spending, retail operations, job creation, and overall economic development. However, if the end of 2024 is a precursor of things to come, 2025 appears poised for continued growth.
The U.S. economy closed 2024 on solid footing, with December retail sales increasing 0.4% month-over-month and 3.9% year-over-year, contributing to an annualized gain of 4.1% for the fourth quarter. GDP growth remained strong, posting a 2.8% increase for the year and a 2.3% annualized expansion in Q4 – marking the tenth consecutive quarter of growth. This economic resilience was fueled by steady consumer spending, significant capital investments, healthy government expenditures, and exports. With a robust labor market, rising wages, and manageable debt levels, retail sales are expected to benefit from these economic tailwinds as we head into the new year.
Following a 50-basis-point rate cut in September, the Federal Reserve lowered rates by an additional 50 basis points in Q4, bringing the benchmark range to 4.25%–4.50% to end the year—the lowest level in nearly two years. While market participants greeted this move favorably, policymakers have indicated that a stronger-than-expected economy and slight inflation upticks may limit the number of rate cuts in 2025, potentially reducing expectations from four cuts to two—or even none.
The commercial real estate sector reported healthy results to close 2024 and retail property fundamentals remained historically strong, as a lack of new construction and steady demand characteristics combined to keep vacancy rates at a record low of just 4.7% [1]. New retail development projects face continued economic constraints considering the current cost of construction when compared to today’s market rental rates. This environment should support additional occupancy gains and rent growth for landlords in the short term and permit supply-constrained conditions to persist for the near future.
While still positive at 1.6M SF, net absorption across the retail sector reported a softer increase in 2024 compared to previous years. This slowdown was largely due to historically high occupancy levels limiting the amount of available retail space and a wave of large-format store closures announced in the fourth quarter; however, these closures also introduced much needed supply for growth-minded retail operators.
While uncertainties remain, the outlook for 2025 remains promising. The combination of favorable economic conditions, supportive government policies and a resilient commercial real estate market creates a strong foundation for sustained progress. These factors, coupled with limited supply and robust demand for retail space, have positioned retail real estate as a favorable asset class for owner-operators and real estate investment managers. Baceline Group is well-positioned to capitalize on these market conditions and expand our robust portfolio of 132 Neighborhood Shopping Centers, further solidifying our position in the retail sector.
[1] Lee & Associates, Q4 2024 Retail Overview