Raphael Stevens

Starbucks is appointing Tressie Lieberman as global chief brand officer.
Lieberman previously overlapped with new Starbucks CEO Brian Niccol at Chipotle Mexican Grill, Taco Bell and Pizza Hut.
In his first week on the job, Niccol said improving the company’s branding was one of his four priorities to turn around the U.S. business.

Tressie Lieberman, the incoming global chief brand officer at Starbucks.
Courtesy: Starbucks

Starbucks has tapped Chipotle alum Tressie Lieberman as its global chief brand officer, a newly created position and the latest executive change under Brian Niccol after he left Chipotle and took over as CEO of the coffee chain last month.
In Niccol’s first week on the job at Starbucks, he outlined his plan for turning around the chain’s slumping sales in the U.S. For the past three quarters, Starbucks has reported same-store sales declines for its home market as its occasional customers buy fewer macchiatos and Refreshers.

Among four top priorities Niccol described in his plan was improving the company’s branding. He wants to remind customers about the chain’s coffee expertise and its special coffee-shop experience, according to his open letter.
“Starbucks is a brand people love. It’s time to tell our story again and reintroduce Starbucks to the world. Tressie is the perfect person to help us do that. She has a proven track record of building strong brands, developing compelling products, creating great customer experiences, and leading breakthrough marketing,” Niccol said in a statement on Friday.
Niccol created a similar global chief brand officer role at Chipotle when he took over there in 2018.
Lieberman will start at Starbucks on Nov 4. and report to Niccol.
Most recently, she served as chief marketing officer for Yahoo. Prior to that role, she was vice president of digital marketing and off-premise at Chipotle between 2018 and 2023. She also overlapped with Niccol when both executives were at Pizza Hut and Taco Bell, which are owned by Yum Brands.

In addition to Lieberman’s hiring, Starbucks said Friday that Dawn Clark, the company’s executive creative director, and Angele Robinson-Gaylord, who leads store development, will now report to Sara Trilling, Starbucks’ president of North America.
The company is also unifying its global communications and corporate affairs departments into a single team.
Previously, Starbucks announced that Michael Conway, the company’s North America CEO, was retiring. Niccol’s predecessor Laxman Narasimhan had appointed Conway to the role last year. After his departure, the company eliminated the position, instead adding Lieberman’s new role. Trilling also now reports directly to Niccol.
In China, Molly Liu is now the sole CEO, after splitting the position with longtime leader of that unit, Belinda Wong, since last year.
Starbucks’ China business has been struggling, hurt by the country’s sluggish economy and the proliferation of local coffee chains that can undercut its prices. Last quarter, the company’s same-store sales slid 14% in China, its second-largest market.
Before his ouster, Narasimhan had said that Starbucks was in the early stages of exploring strategic partnerships for its China business.
Niccol is expected to share more details on his turnaround plans during the company’s fiscal fourth-quarter earnings call on Oct. 30.

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The new Cubitus line will be Patek Philippe’s first new collection since 1999’s Twenty~4.
The lineup includes three different models — two in steel casings and one in platinum.
The new collection comes at a time when luxury watch prices have largely stabilized, fueled by strong demand.

Introducing the new Patek Philippe Cubitus line.
Courtesy: Patek Philippe

Storied Swiss watch maker Patek Philippe announced its first new collection in 25 years this week, dubbed the Cubitus line.
The new collection comes at a time when luxury watch prices have largely stabilized, fueled by strong demand. Younger investors and collectors began buying up luxury time pieces during the Covid-19 pandemic, but secondhand prices have more recently slumped.

The new lineup from Patek Philippe includes three different models — two in steel casings and one in platinum — and is meant to “offer a new reinterpretation of the ‘elegant sporty’ style,” according to a press release. The two steel versions, one two-toned with rose gold to create a more vintage feel and the other purely steel, play into the line’s sporty inspiration and feature colorful faces.
The third model separates itself with a platinum casing and different face design, including a large-format date and a dial tracking the moon phase and the day of the week.
Patek Philippe said it incorporated new technologies in the watches, ranging from an ultrathin and self-winding mini rotor to an instantaneous-jump mechanism that ensures the different displays match up within 18 milliseconds. The brand said it has filed six patent applications for the new tech.
Patek Philippe’s new collection also includes new cufflinks, designed to match the watches with a white-gold frame that reflect the case’s shape.
Patek Philippe, founded in 1839, is often referred to as one of “The Holy Trinity” in watch making, along with Audemars Piguet and Vacheron Constantin.
The brand’s last new collection before the Cubitus line was back in 1999 when it released the Twenty~4 design. That lineup was “dedicated to the young, active and modern woman,” according to Patek Philippe’s website.

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Spirit AeroSystems will furlough some 700 workers as Boeing’s machinist strike enters its sixth week.
The Boeing supplier makes fuselages and other parts for Boeing’s 777, 767 and 737 Max aircraft.
The affected Spirit workers are assigned to the 777 and 767, but not the 737 Max, a spokesman said.

Airplane fuselages bound for Boeing’s 737 Max production facility await shipment on rail sidings at their top supplier, Spirit AeroSystems Holdings Inc., in Wichita, Kansas, on Dec. 17, 2019.
Nick Oxford | Reuters

Boeing supplier Spirit AeroSystems will furlough some 700 workers as a strike by machinists at the plane maker enters its sixth week, a spokesman for the supplier said Friday.
More than 32,000 Boeing workers walked off the job Sept. 13 after overwhelmingly rejecting a tentative labor deal with Boeing, deepening the aircraft producer’s financial strain and handing a new challenge to CEO Kelly Ortberg, who took the reins just over two months ago.

The temporary furloughs account for about 5% of Spirit’s U.S. workforce, according to its latest annual filing. Meanwhile, Boeing and the machinist union remain at an impasse, and Spirit is considering deeper cuts.
“If the strike continues beyond November, we will have to implement layoffs and additional furloughs,” spokesman Joe Buccino told CNBC on Friday.

Read more CNBC airline news

Ortberg, who faces investors in his first earnings call next Wednesday, last week announced a series of drastic measures meant to slash costs as the company’s losses mount, including cutting the workforce by 10%, or about 17,000 people. Boeing is also ending 767 commercial production when orders are fulfilled in 2027 and said its long-delayed 777X wide-body jet won’t debut until 2026, pushing it back yet another year.
Boeing is in the process of raising debt or equity to increase liquidity.
The roughly 700 Spirit workers affected by the 21-day furlough are assigned to the 777 and 767 programs for Boeing, for which Spirit has built up “significant inventory,” Buccino said. Spirit workers on Boeing’s best-selling 737 Max are not affected, he added. Work on all three programs, however, is stalled because of the strike.
Boeing agreed to acquire Spirit this summer, but the companies don’t expect the deal to close until mid-2025. Reuters earlier reported Spirit’s latest furloughs. More

CVS has replaced CEO Karen Lynch with longtime pharmacy benefits executive David Joyner.
The company has been struggling to drive higher profits and better stock performance.
Last month, major CVS shareholder Glenview Capital began a significant push for changes at the company.

David Joyner, executive vice president and president of pharmacy services at CVS Health Corp., speaks during a Senate Health, Education, Labor, and Pensions Committee hearing in Washington, DC, US, on Wednesday, May 10, 2023.
Al Drago | Bloomberg | Getty Images

Longtime CVS Health executive David Joyner has succeeded Karen Lynch as CEO, as the company struggles to drive higher profits and stock performance, CVS announced Friday.
The move, effective Thursday, the day before the announcement, comes as CVS shares have fallen nearly 20% this year. The stock plunged about 11% in premarket trading Friday.

CVS has faced challenges as higher medical costs weigh on its insurance unit, Aetna, and a retail pharmacy business pressured by softer consumer spending and reimbursement headwinds for prescription drugs. In August, the company slashed its full-year profit guidance for the third consecutive quarter and said it would cut $2 billion in costs over the next several years.
In its release Friday, CVS also said it expects adjusted earnings of between $1.05 and $1.10 per share for its third quarter. It anticipates higher medical costs than previously expected.
“In light of continued elevated medical cost pressures in the Health Care Benefits segment, investors should no longer rely on the Company’s previous guidance provided on its second quarter 2024 earnings call on August 7, 2024,” CVS said in the release.
The company is set to report third-quarter earnings on Nov. 6.
Last month, major CVS shareholder Glenview Capital began a significant push for changes at the company, CNBC previously reported.

CNBC also reported last month that CVS’ board had engaged strategic advisors to weigh its options, including the potential of a breakup of its insurance and retail businesses. But CVS will now move forward intact, a company spokesperson told CNBC on Friday.
Joyner most recently oversaw the company’s pharmacy services business as president of CVS’ major pharmacy benefits manager, Caremark, a similar position to the one Lynch held before she assumed the top job in February 2021. He retired from CVS in 2019 before returning to helm Caremark at the beginning of last year.
“I came back to CVS Health in 2023 because I believed I could give more to the company, and I take this opportunity today for the same reason,” Joyner said in a statement.
He began his career at Aetna in pharmacy benefit services and previously held the role of executive vice president of sales and marketing at CVS Health.
Joyner also had a roughly eight-year stint at Caremark before CVS acquired it in 2007. Caremark is one of the nation’s three largest so-called PBMs, which sit at the center of the U.S. drug supply chain. PBMs negotiate drug rebates with manufacturers on behalf of insurers, create lists of preferred medications covered by health plans and reimburse pharmacies for prescriptions. 
“We believe David and his deep understanding of our integrated business can help us more directly address the challenges our industry faces, more rapidly advance the operational improvements our company requires, and fully realize the value we can uniquely create,” Chairman Roger Farah said in a statement.
Lynch also stepped down from the company’s board of directors this week, the company said Friday. Joyner will take a seat on the board, and Farah will assume the role of executive chairman.
As CEO of CVS, Joyner will grapple with the Biden administration and lawmakers’ increased scrutiny of Caremark and other PBMs, which will likely continue regardless of which party holds the White House after the U.S. election. The Federal Trade Commission last month sued Caremark and two other large PBMs, arguing that they use practices that boost their profits while inflating insulin costs for patients.
He’ll also need to navigate higher medical costs from Medicare Advantage patients, which have jumped over the last year for insurers as more seniors return to hospitals to undergo procedures they had delayed during the Covid-19 pandemic. Medicare Advantage is a privately run health insurance plan contracted by Medicare.
The company is hoping to achieve its target of 100 to 200 basis points margin improvement in its Medicare Advantage business next year, CVS executives said in August. 
Next month, CVS will report that medical costs were still elevated in the third quarter.
The company expects its insurance unit’s medical benefit ratio — a measure of total medical expenses paid relative to premiums collected — to be around 95.2% for the quarter, up from 85.7% during the year-earlier period. A lower ratio typically indicates that a company collected more in premiums than it paid out in benefits, resulting in higher profitability.
— CNBC’s Sara Salinas and Rohan Goswami contributed to this report.

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Warner Bros.’ “Joker: Folie a Deux” is not the only blockbuster-budgeted film to fall flat at the box office this year.
Studios like Universal, Sony and Lionsgate have dropped hundreds of millions of dollars on franchise features and star-studded ensembles only to see ticket sales sputter at the big screen.
As Hollywood contends with a growing streaming market and a more fickle moviegoing public, these misfires could worry investors.

Joaquin Phoenix stars as Arthur Fleck in “Joker: Folie a Deux.”
Warner Bros.

Warner Bros. took a big swing with “Joker: Folie a Deux.” It’s turned into a big whiff.
After the billion-dollar success of “Joker” in 2019 on a shoestring budget of just $55 million, the studio greenlit a sequel, offering director Todd Phillips a substantially larger budget of $200 million. As of Wednesday, the film has garnered just $53.8 million domestically, according to Comscore. It’s global haul stands at $166 million as of Sunday with updates expected over the weekend.

Panned by critics and audiences, “Joker: Folie a Deux” is not expected to recoup much of its lofty production budget or the additional $100 million in estimated marketing and distribution costs by the end of its theatrical run.
And it’s not the only blockbuster-budgeted film to disappoint at the box office this year.
Other studios, including Warner Bros., Universal, Lionsgate and even Sony, have dropped hundreds of millions of dollars on franchise features and star-studded ensembles — only to see ticket sales sputter. Of course, it’s not an unusual occurrence in the theatrical industry.
“A combination of hits and flops are a hallmark of every box office year,” said Paul Dergarabedian, senior media analyst at Comscore. “But, 2024, being subject to a variety of unique challenges to both film production and the release calendar, created an imperfect storm that led to a series of creative misfires and financial failures.”
Additionally, as Hollywood contends with a growing streaming market and a more fickle moviegoing public, these misfires could worry investors.

“Before the rise of streaming, assessing a film’s financial performance was seemingly clearer cut than it has become in recent years,” said Shawn Robbins, director of analytics for Fandango’s movie division.
Because of streaming, Hollywood has shortened the theatrical window, bringing movies to the home market much faster than before. This means that potential moviegoers, who might be on the fence about seeing a movie or seeing it quickly, have a shorter time to wait before they can view it from their couch on a streaming service to which they already subscribe. And if that movie has poor reviews, audiences have even less incentive to go out to cinemas.
“In turn, this shift in dynamics and business models might call into question what kind of box office-to-budget ratio constitutes a loss and what doesn’t,” Robbins noted. “Some numbers are easier to eyeball and identify as a financial misfire without much argument, to be sure. Others may be less obvious to discern in a constantly evolving global marketplace.”
For example, a straight-to-streaming movie with a budget of $200 million could be deemed a success for a studio, if it drums up enough views. Meanwhile, a $200 million film that goes to theaters and underperforms is often considered a failure. That’s especially true when considering studios are also spending on marketing and promotion costs, usually equal to half of the production budget, and sharing ticket proceeds with cinemas.
For companies like Netflix, Apple or Amazon that have bigger cushions and stakeholders who are traditionally more comfortable with risk, big-budget films going straight to streaming may not faze investors. But for more traditional media companies, that have long traded off their successes at the box office, shareholders still want to see a big theatrical return on investment.
Here’s a look at some of the biggest box office disappointments so far in 2024, based on production budgets estimated by IMDb and box office tallies to date from Comscore:

“Joker: Folie a Deux”

Estimated production budget: $200 million
Global box office: $166 million
Release date: Oct. 4, 2024

Warner Bros.’ “Joker: Folie a Deux” fell short of opening weekend expectations earlier this month, securing just $37.6 million domestically after initial box office forecasts called for close to $70 million in its first few days in theaters.
The film picks up after Arthur Fleck’s arrest in “Joker” as he awaits trial at Arkham State Hospital. Audiences failed to connect with the sequel, which utilized Lady Gaga, who played a version of Harley Quinn, and her musical talents in a number of scenes.
“Joker: Folie a Deux” suffered the biggest second week drop of any DC studios film, a whopping 81% fall.
For comparison, its predecessor snapped up $96.2 million during its opening weekend and $248.4 million globally in its first three days.
“Joker: Folie a Deux” failed to lure back its most ardent fans or inspire new moviegoers to flock to cinemas. Critics widely panned the flick, as it currently holds a 33% rating on review aggregator Rotten Tomatoes and a rare “D” on CinemaScore.

“Borderlands”

Estimated production budget: $115 million
Global box office: $32.9 million
Release date: Aug. 9, 2024

Trying to capitalize on the popularity of video game-based movies, Lionsgate shelled out $115 million for director Eli Roth’s adaptation of “Borderlands.”
The film touted an all-star cast of Cate Blanchett, Kevin Hart, Jack Black, Jamie Lee Curtis and up-and-comer Ariana Greenblatt, but fell flat with audiences. Blanchett portrayed an infamous bounty hunter who forms an unlikely alliance with a ragtag team of misfits while on a quest to to find the missing daughter of the most powerful man in the universe.
“Borderlands” generated a 10% rating on Rotten Tomatoes from 161 reviews and stalled out with just $32.9 million in global ticket sales.

Still from Lionsgate’s “Borderlands.”

“Argylle”

Estimated production budget: $200 million
Global box office: $96.2 million
Release date: Feb. 2, 2024

Universal’s “Argylle” similarly had a stacked cast — Bryce Dallas Howard, Sam Rockwell, Henry Cavill, John Cena, Dua Lipa and Samuel L. Jackson, among them — but failed to drum-up box office interest.
The film centers on Howard as the reclusive author Elly Conway, whose best-selling espionage novels start to mirror the covert actions of a real-life spy organization.
After spending around $200 million on production and an estimated $100 million on marketing efforts, the film generated just $96.2 million worldwide.
Much of the film’s issues stemmed from poor reviews, having garnered a 33% rating on Rotten Tomatoes for what some called a convoluted, yet predictable plot.

“The Fall Guy”

Estimated production budget: $125 million
Global box office: $180.9 million
Release date: May 3, 2024

Universal’s “The Fall Guy” was actually very well-received by critics, earning an 81% rating on Rotten Tomatoes. However, even the dynamic duo of Ryan Gosling, fresh off “Barbie,” and Emily Blunt, one of the stars of “Oppenheimer,” wasn’t enough to draw audiences out to cinemas.
The film, a love letter to stunt performers based on a television show from the ’80s with the same name, centers on Gosling’s Colt Seavers, a battle-scarred stuntman who is drawn back into the movie industry after the star of former love interest Jody Moreno’s (Blunt) directorial debut goes missing.
“The Fall Guy” tallied just $180.9 million globally. It’s production budget was $125 million, not including marketing and distribution costs. The lack of major franchise attachment and niche storyline appears to have narrowed the audience.

Ryan Gosling stars in Universal’s “The Fall Guy.”

“Madame Web”

Estimated production budget: $80 million
Global box office: $100 million
Release date: Feb. 14, 2024

Sony’s Spider-Man universe films have been hit-or-miss at the box office for years. For every Venom or Spider-Verse success there’s a “Morbius” or a “Madame Web.”
With an 11% score on Rotten Tomatoes, “Madame Web” sparked the wrong kind of viral attention after its release. Memes flooded social media sites poking fun at the cast’s wooden performances, gaping plot holes and poorly redubbed dialogue.
“Madame Web” is part of Sony’s Spider-Man universe and follows Cassandra Webb, a New York City paramedic with clairvoyance. Webb’s visions warn her about a threat to three young women, who each will gain spider powers in the future.
The film, which cost around $80 million to produce, managed to scoop up around $100 million in ticket sales globally. However, after marketing costs and splitting receipts with cinemas, the film did not make back its budget.

“Furiosa: A Mad Max Saga”

Estimated production budget: $168 million
Global box office: $172.4 million
Release date: May 24, 2024

Warner Bros.’ “Furiosa: A Mad Max Saga” was a long-awaited prequel from the mind of George Miller. However, despite solid reviews — a 90% “Fresh” rating on Rotten Tomatoes — the film failed to explode at the box office.
A prequel to 2015’s “Mad Max: Fury Road,” the film explores Furiosa’s early life after she is kidnapped by a tyrannical warlord and attempts over several years to get back home.
The film’s production did benefit from extensive government subsidies for filming in Australia, which lessened the financial blow, but “Furiosa” only generated $172.4 million during its global run. Its production budget was estimated at around $168 million without marketing expenses.
For comparison, “Mad Max: Fury Road” snared $368 million during its global run in 2015.

Chris Hemsworth stars as the villainous Dementus in Warner Bros.’ “Furiosa: A Mad Max Saga.”
Warner Bros. Discovery

“Megalopolis”

Estimated production budget: $120 million
Global box office: $9.2 million
Release date: Sept. 27, 2024

“Megalopolis” was a passion project for writer-director Francis Ford Coppola, who had been stewing over the film’s concept since the late ’70s. He self-financed the film, shelling out $120 million on production.
The film is set in an alternate version of 21st-century New York City called New Rome. It follows an architect named Cesar Catilina (Adam Driver) as he attempts to revitalize the city by building the futuristic utopia called Megalopolis all while facing corrupt leadership bent on shutting down his plans.
The “overstuffed opus,” as Rotten Tomatoes critics called the piece, had a sizeable cast of heavyweights — Adam Driver, Dustin Hoffman, Giancarlo Esposito, Laurence Fishburne and Jon Voight among them — but seemed to only drawn in Coppola’s biggest fans. “Megalopolis” tallied just $9.2 million globally.
The film was distributed by Lionsgate. It is unclear if the marketing and distribution costs were split between Coppola and Lionsgate or if the studio took on the financial burden.

“Horizon: An American Saga — Chapter 1”

Estimated production budget: $100 million
Global box office: $38.2 million
Release date: June 28, 2024

Another passion project, “Horizon: An American Saga — Chapter 1” from Kevin Costner has faced difficulties at the box office. The feature only collected $38.2 million at the global box office during its run in theaters. Its poor performance led Costner and Warner Bros. to postpone the release of a planned sequel, “Chapter 2,” which had been set for about six weeks after the first hit theaters.
“Chapter 1” follows several different narratives of people exploring the American West and pioneering new territory, including a gruff cowboy played by Costner, who finds himself on the run with a prostitute and a young boy after killing a fellow gunman.
Costner produced, wrote, directed and starred in both films, spending an estimated $100 million on the two projects. Two more chapters in the saga are still in development with an undisclosed budget.
Western films are a tough sell at modern box offices. The classic genre is beloved by film buffs, but isn’t a huge draw for moviegoers. Currently, the highest-grossing western film at the box office is Quentin Tarantino’s “Django Unchained” from 2012, which generated about $450 million globally, according to Comscore. Costner’s “Dances with Wolves” from 1990 is the second-highest with $424.2 million in global ticket sales, not adjusted for inflation.
While 2013’s “The Lone Ranger” tallied $260 million worldwide, no other western film has garnered more than $250 million at the global box office.
Disclosure: Comcast is the parent company of NBCUniversal and CNBC. NBCUniversal owns Fandango and Rotten Tomatoes. More

Procter & Gamble beat quarterly earnings expectations but missed revenue estimates.
The company said demand fell in its Greater China market.

Procter & Gamble on Friday reported weaker-than-expected revenue as lower demand in China again weighed on its sales.
Shares of the company fell 1% in premarket trading.

Here’s what the company reported compared with what Wall Street was expecting, based on a survey of analysts by LSEG:

Earnings per share: $1.93 adjusted vs. $1.90 expected
Revenue: $21.74 billion vs. $21.91 billion expected

P&G reported fiscal first-quarter net income attributable to the company of $3.96 billion, or $1.61 per share, down from $4.52 billion, or $1.83 per share, a year earlier.
Excluding restructuring charges and other items, the company earned $1.93 per share.
Net sales dropped 1% to $21.71 billion. Organic revenue, which strips out foreign exchange, acquisitions and divestitures, rose 2%, helped by higher prices.
The company reported flat volume for the quarter. The metric excludes pricing, which makes it a more accurate reflection of demand than sales. Like many consumer companies, P&G has seen demand for its products fall after several years of price hikes. Last quarter was the first time in more than two years that its volume increased.

In the U.S., P&G’s volume grew in eight of its 10 categories, and the company isn’t seeing any trade down to private-label products, CFO Andre Schulten said on call with press.
But it’s a different story in Greater China, the company’s second-largest market. The company called out volume declines in China for both its hair care and oral care segments. P&G is forecasting that it will take several quarters for demand to pick up again, although the Chinese government has recently laid out plans to boost the country’s economy.
“The market continues to be weak and will be weak, we believe, for a number of quarters to come,” Schulten said.
P&G’s beauty business, which includes brands like Pantene and Olay, saw volume fall 2% in the quarter. In particular, its skin care segment struggled, with organic sales tumbling more than 20%. P&G blamed the steep decline on lower volume and decreased sales of its pricey SK-II brand, which has struggled ever since pandemic lockdowns.
Both P&G’s health care and baby, feminine and family care divisions both reported 1% declines in volume for the quarter. But its baby care segment, which includes Pampers diapers, had an even worse quarter, with its organic sales falling by mid-single digits.
P&G’s grooming division, which includes Gillette and Venus, reported 4% volume growth. The company credited innovation for its strong performance.
The company’s fabric and home care business saw volume rise 1% in the quarter. The division includes Swiffer, Febreze and Tide products.
P&G reiterated its fiscal 2025 forecast. It anticipates core net earnings per share in a range of $6.91 to $7.05 and revenue growth of 2% to 4%. More

The Federal Reserve began its interest rate cutting cycle last month, lowering the Fed funds rate for the first time since 2020 by 50 basis points, while hinting that more cuts are on the horizon.
The Fed’s shift in policy is “the most notable green shoot” for the commercial real estate market, according to Wells Fargo analysts.
Refinancing and sales volumes are already picking up as sentiment around the sector improves after years of declining transactions and property valuations.

A commercial building available for rent in Melville, New York, April 17, 2023.
Howard Schnapp | Newsday | Getty Images

The tide could be turning for commercial real estate.
The Federal Reserve began its interest rate cutting cycle in September, lowering the Fed funds rate for the first time since 2020 by 50 basis points, while hinting that more cuts are on the horizon. That could give interest rate-sensitive sectors such as commercial real estate long-awaited positive momentum.

Lower interest rates make debt cheaper, helping to accelerate deal flow in an industry where deal activity had stalled into the second quarter of 2024. The CRE market had been pressured in the years after the initial Covid shutdowns, ending a nearly 15-year bull run in the face of higher borrowing costs, weak tenant demand and increased property supply. As a result, property values and sales declined.
The Fed’s shift in policy is “the most notable green shoot” for the CRE market, Wells Fargo analysts wrote in a Sept. 3 research note. While lower rates are not a “magic bullet,” the easing of the Fed’s monetary policy “lays the groundwork for a commercial real estate recovery,” analysts wrote in a follow-up report in late September.
For higher dividend-paying stocks such as REITs, lower rates make these fixed-income investments more attractive for investors. But the primary impact of interest rate cuts is psychological, according to Alan Todd, head of commercial mortgage-backed security strategy at Bank of America.
“Once the Fed starts to cut, they’ll continue along that path,” which fosters a sense of stability, Todd said. As the market feels more comfortable, it will “incentivize borrowers to get off the sideline and start to transact.”

CRE sales recovery

Refinancing and sales volumes are already picking up as sentiment around the sector improves, according to Willy Walker, CEO of CRE financing firm Walker & Dunlop, in an interview with CNBC in late September.

During the Fed’s tightening cycle, rising rates caused a standoff between buyers and sellers where buyers hoped for lower prices while sellers clung to inflated valuations. This stalemate froze the deal market, prompting investors to adopt a wait-and-see mindset, leaving many to wonder what’s next for the market.
But more recently, overall transaction volumes saw their first quarterly increase since 2022 in the second quarter of 2024, driven by sales in the multifamily sector, analysts noted.
More than $40 billion in transactions occurred during the second quarter, a 13.9% jump quarter over quarter, but still 9.4% lower year over year, according to real estate data intelligence firm Altus Group.
With deals ticking up and supply coming down, property valuations appear be improving as the MSCI U.S. REIT Index showed a steady increase since the spring into September, Wells Fargo analysts noted in their Sept. 25 research.
While these dynamics could set the stage for a broader recovery, with some major subsectors such as commercial retail real estate picking up in tandem, the path forward will likely be uneven.

Headwinds in office

The office sector of the CRE market continues to face a number of challenges, despite some signs of modest improvement in the second quarter.
Wells Fargo reported that for the first time since 2022, office net absorption — an industry metric used to determine the change in occupied space — turned positive, with over 2 million square feet taken up during the three-month period.
“Although modest, this was the best outturn since Q4-2021,” according to analysts. However, this small victory wasn’t enough to offset rising vacancies, as supply continued to outpace demand for the 10th consecutive quarter, pushing the availability rate to a new high of 16.7%.
In major cities such as Manhattan, office buildings in June had an average visitation rate of 77% of 2019 levels — the highest monthly total since the Real Estate Board of New York began tracking in February 2023.
Still, Wells Fargo analysts point out that “the headwinds still greatly outnumber the tailwinds,” with hybrid work and a downshift in office job growth continuing to weigh on demand.
Prices remain below pre-pandemic levels, with central business district office prices down 48.7% since 2019, according to the analysts.
Beyond the temporary disruption of remote work, there are “structural challenges” that have intensified the industry’s difficulties since the pandemic, including low demand, soaring vacancies and flat rents, according to Chad Littell, national director of U.S. Capital Markets Analytics at CoStar Group.
“Recovery looks distant,” for the CRE office sector, Littell said. “While other property types are finding their footing, office may have a longer road ahead — perhaps another year or more before prices stabilize.”

Multifamily strength

Multifamily real estate assets, on the other hand, have experienced an uptick in demand, with net absorption reaching their highest level in almost three years during the second quarter, according to Wells Fargo’s research.
That’s true even as construction of multifamily housing booms, with completed units on track to exceed a record 500,000 this year, according to data from RentCafe. By the end of 2024, developers are set to complete more than 518,000 rental units.
The multifamily sector was a pandemic darling within CRE as rent growth hit double digits in 2021. But that growth rate has since slowed to around 1%.
Yet this increase in demand suggests a shift in consumer behavior, as “households are taking advantage of greater apartment availability, generous concessions and more manageable rent growth,” Wells Fargo said.
Among the factors pushing renters to multifamily is a lack of affordable single-family homes for entry level. This trend is underscored by the stark contrast between homeownership costs and rental expenses: The average monthly mortgage payment reached $2,248 during the second quarter, 31% higher than the average monthly apartment rent of $1,712, Wells Fargo said.
Multifamily is also benefiting from stabilizing vacancy rates. For the first time in over two years, vacancies didn’t rise during the second quarter, holding steady at 7.8%. This stabilization, combined with the 1.1% average increase in rent, indicates a healthier balance between supply and demand.
Looking ahead, the outlook for the multifamily sector remains positive.
Wells Fargo analysis suggested that “high homeownership costs should continue to support rent demand,” meaning that current trends favoring multifamily housing are likely to persist in the near term. More