Real Estate Occupancy: The Starting Point Matters

With prices down 20% from the April 2022 peak,¹ there may be a buying opportunity in commercial real estate.  Plus, occupancy rates for most property types are in good shape from a historical perspective despite being tested during the past three years of higher interest rates. In contrast to low historical occupancy rates in the office sector, occupancy rates in several residential and consumer-driven sectors including single-family rentals, apartments, industrial, non-mall retail (strip centers), self-storage, and medical office look attractive compared to the end of the Global Financial Crisis (GFC), which was the last time real estate emerged from a period of repricing, and long-term averages.

Compared to post-GFC:

• 94% average occupancy for these sectors in 4Q-2024 is 5% higher than the 89% post-GFC average in 4Q-2009.
• Each sector currently has a higher occupancy rate than at the start of the post-GFC era. 

Compared to the long-term average:

•  94% average occupancy for these sectors in 4Q-2024 is higher than the 93% long-term average (2005-2024).
• All these sectors except apartments have higher current occupancy rates than their 20-year averages.
   

Figure 1: US occupancy rate by property type (%)

Non-office occupancy averages 94%, versus post-GFC at 89%

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Sources: Invesco Real Estate, utilizing data from Green Street and CoStar as of January 2025. The multi-sector average reflects only the sectors shown on the chart.
 

Conclusion: Great place to start

After significant repricing, current occupancy conditions across most real estate property types (other than traditional office) are in a great starting place compared to the start of the post-GFC recovery and appear favorable compared to long-term averages.

1  Source: Green Street’s Commercial Property Price Index for core sectors (apartments, industrial, office, and retail). The percent change in this index from the April 2022 peak to January 2025 is -19.8%. Past performance does not guarantee future results. An investment cannot be made into an index. CPPI is used as a proxy for commercial real estate pricing. CPPI is a time series of unleveraged U.S. commercial property values that captures the prices at which commercial real estate transactions are currently being negotiated and contracted.

Investment risks
The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested. Property and land can be difficult to sell, so investors may not be able to sell such investments when they want to. The value of property is generally a matter of an independent valuer's opinion and may not be realized.
Generally, real estate assets are illiquid in nature. Although certain kinds of investments are expected to generate current income, the return of capital and the realization of gains, if any, from an investment will often occur upon the partial or complete disposition of such investment.
Investing in real estate typically involves a moderate to high degree of risk. The possibility of partial or total loss of capital will exist.
Investing in commercial real estate assets involves certain risks, including but not limited to tenants' inability to pay rent; increases in interest rates and lack of availability of financing; tenant turnover and vacancies; and changes in supply of or demand for similar property types in a given market.
Important information
This information is intended for Institutional Investors that are US residents.
Data as of January 2025, unless otherwise stated.
Where individuals or the business have expressed opinions, they are based on current market conditions, they may differ from those of other investment professionals and are subject to change without notice.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities.