Kevin Fagan, Moody's head of commercial real estate economic analysis, joins Asking for a Trend to discuss the state of the commercial real estate market.

"From what we call the space market — which is the market for taking down commercial real estate space in terms of tenancy — rents and vacancies have kind of gone in the wrong direction overall. But then on the price side, prices have been relatively stable. I think that we're probably in what we would call a normalization period," Fagan tells Yahoo Finance.

He notes that there has been a migration toward the Sun Belt region of the US. However, it got "a little bit overheated," and demand started to fall. Meanwhile, the Snowbelt has seen improved performance, indicating an overall normalization.

As the Federal Reserve kicks off its rate-easing cycle, Fagan explains that transaction volume is starting to tick up and will be able to continue the momentum as interest rates stabilize.

While many companies have implemented return-to-office mandates, he notes that demand for office space has improved significantly. However, it still is well below pre-pandemic levels. He adds, "What's really important for real estate is for us to figure out, what kind of space are tenants going to take per employee now in this hybrid work environment? And a lot of tenants still aren't sure about that. It takes a long time for these leases to roll over."

Watch the video above to hear what Fagan says about the trend of converting commercial buildings into residential spaces.

To watch more expert insights and analysis on the latest market action, check out more Asking for a Trend here.

This post was written by Melanie Riehl