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CRE Expert Predictions for 2024: Victor Calanog Insights

Victor Calanog
January 29, 2024 2 mins

Victor Calanog is the Global Head of Research and Strategy/Chief Economist at Manulife Investment Management

Editor’s Note: This guest post is an excerpt from the LightBox CRE Expert Predictions for 2024.

Where Interest Rates Will Land

I expect to see some kind of rate decline in 2024. If I had to make a call as to the equilibrium interest rate at which the U.S. economy is balanced between expansion and contraction, my (nominal) estimate is around 2.5%. If the Fed hits its 2% inflation target, that means the long-run neutral rate is really at or around 0.5%. This is consistent with what the Fed is forecasting.

Office Market Outlook

While the U.S. office market is suffering through significant challenges, office is doing well in Europe and Asia, where physical occupancy is back to between 90% and 100%. The way we learn and interact in North America is very different than in other parts of the world where information tends to be transmitted in a tacit way, as opposed to codified. Proximity doesn’t matter as much if you can send information and promote learning via a PDF attachment. But if a lot of how information is transmitted, and learning is generated isn’t codified – then proximity to each other means the typical office environment still provides benefits.

What many workers are missing out on is the connection between coming to the office and mentoring, training and career-building relationships. The younger generation may become the force that pulls middle level managers back into the office, not just because the executives say you need to go in, but because they need to teach their people, who are eager to learn.

I don’t think that converting office to other uses is going to be the panacea people are thinking about. Office conversions to residential are not easy. We estimate that less than 10% of office inventory around the country may be eligible for successful conversions. And even then, it will likely require government support for the numbers to pencil out.

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