2024 Maine’s Capital Market Outlook

By Chris Paszyc, CCIM, SIOR | Partner, Broker

In 2024, despite all current indications of a successful Fed-piloted “soft landing” we predict the commercial real estate investment volume to fall year-overyear, continuing the downtrend that started in 2022. However, the State of Maine will out perform the national averages and continue to be viewed favorably on a national stage. Financing will likely be more difficult to obtain for commercial real estate investments as local and regional lenders shed their CRE exposure. Furthermore, capital will flow to alternative investments, such as US Treasuries, that have less perceived risk and/or surety of returns. As the realities of this economy and lending environment set in, opportunities will be created for equity buyers and for sellers able to owner-finance. For strong borrowers, it may also create opportunities for loan assumptions or restructuring.

While 2023 investment volume was down significantly nationwide year-over-year (with sources reporting declines of between 37% and 60%), a notable number of investment transactions have occurred throughout the state of Maine, with more in the pipeline for 2024. However, most of these deals are non-traditional in some form, employing creative capital stacks and compromise.

According to CBRE’s 2023 Mid-Year Review, cap rates are forecasted to stabilize in early 2024 except for office assets, which should see expansion until at least mid-year. An interest rate cut is not expected until at least early 2024 and the report predicts the 10-year Treasury rate will end 2023 at 4.0% before falling closer to 3.5% in late 2024.

However, some industry experts make an argument that cap rates are not directly correlated with interest rates, but with capital flows. They say that a desirable asset class attracts more capital and yields will compress compared to other asset classes (currently multifamily and industrial are favored).

Josh Greenleaf at LXMI Capital makes the counterpoint that cap rates appear lower than they actually are, due to a small percentage of deals finding the right buyer at the right time. An interesting statistic would be the number of deals and advertised cap rates that did not sell during these transitional periods—a list I expect would be voluminous.

In summary, the 2024 cap rates for commercial real estate with flaws and/or perceived risk will be impacted to a greater degree than fundamentally sound assets and favored asset classes, and there will be investment opportunities as sellers accept the market realities. We expect increasing activity as the year progresses, with investors capitalizing on an emerging opportunistic environment, plus less stringent underwriting and moderating debt cost from lenders.

If you are a commercial real estate owner or investor, it is a good time to discuss your options. The Boulos Company looks forward to working with you to develop and execute your real estate strategy in 2024.

Download your copy of our entire 2024 Market Outlook Report here.